While the broader markets are trading near all-time highs, several Canadian growth stocks have yet to regain record levels. One such Canadian tech stock is Kraken Robotics (TSXV: PNG). With a market cap of $644 million, Kraken Robotics stock is down 15% from all-time highs.
Kraken develops advanced underwater technology, including sonar sensors, optical systems, pressure-tolerant batteries, and robotic equipment for unmanned vehicles. It offers products (like the MINSAS sonar and KATFISH towed vehicle) and services for military and commercial applications, enabling high-resolution seabed mapping and underwater imaging across global markets.
Let’s see why I’m bullish on the small-cap stock right now.
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Is this Canadian growth stock a good buy?
Kraken Robotics posted record financial results for 2024, with revenue increasing 31% year over year to $91.3 million and adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) growing 47% to $20.7 million. The marine technology company specializes in underwater imaging sensors and robotic systems and has forecast even stronger growth for 2025.
CEO Greg Reid provided revenue guidance of between $120 million and $135 million for 2025, indicating 40% growth at the midpoint, while adjusted EBITDA is expected at $30 million. Kraken’s sales pipeline has more than doubled to over $2 billion compared to $900 million reported in February 2024.
Kraken’s business segments show promising momentum. The product division, which accounted for 72% of 2024 revenue, saw 26% growth driven by its subsea battery business. Meanwhile, the services segment grew 47% to $25 million last year, bolstered by increased Sub-Bottom Imager jobs and Acoustic Corer projects.
The company has secured $45 million in year-to-date subsea power orders and plans to triple production capacity with a new 60,000-square-foot manufacturing facility in Nova Scotia, scheduled to be operational by year-end. Moreover, CFO Joe Mackay noted the company expects to be working capital positive in 2025.
Reid highlighted rising geopolitical tensions as accelerating investments in marine technology, with nations increasingly focused on protecting critical underwater infrastructure. Moreover, Kraken’s synthetic aperture sonar technology and subsea power solutions are gaining traction with unmanned underwater vehicle manufacturers.
While the offshore wind market in the U.S. faces some softness, Kraken expects continued growth in its commercial services business through geographic expansion and the integration of its recently acquired 3D at Depth subsea LiDAR (light detection and ranging) business.
Is this Canadian tech stock undervalued?
Management believes Kraken is well-positioned to maintain 30-40% annual growth rates, citing increased defence spending across NATO (North Atlantic Treaty Organization) and allied nations and rising demand for underwater surveillance capabilities.
Kraken closed over $70 million in equity financings during 2024 and secured $45 million in new credit facilities to support its expansion plans.
Bay Street expects Kraken to increase sales from $91.3 million in 2024 to $217 million in 2027. Comparatively, adjusted earnings are forecast to expand from $0.09 per share in 2024 to $0.13 per share in 2027. Analysts expect free cash flow to increase to $22.5 million in 2027, up from $16.7 million this year.
If Kraken is valued at 50 times forward free cash flow, the Canadian stock should gain around 75% over the next two years. Given consensus price targets, analysts remain bullish and expect the tech stock to surge close to 40% from current levels.
