Descartes Systems (TSX:DSG) stock fell 11% on June 4 after the Organization for Economic Co-operation and Development (OECD) revised down Canada’s outlook over trade tensions. OECD has reduced Canada’s gross domestic product (GDP) outlook to 1% in 2025 and 1.1% in 2026 from 1.5% in 2024. It is feared that the export-led economy’s growth prospects could decline and inflation increase if trade barriers are prolonged.
Why did the tech stock fall on June 4?
Further supporting this forecast were Statistics Canada’s April export figures released on June 5. Canada’s merchandise exports fell 10.8%, the biggest drop in five years. Its imports fell 3.5%, widening the trade deficit to a record high of $7.1 billion (from $2.3 billion in March). Investors reacted to these figures and sold Descartes stock in a rush.
Descartes stock is sensitive to trade figures as it earns revenue by providing supply chain management and logistics solutions.
The dip was a correction, as the stock was trading above 60 times its earnings per share. The last time the stock came closer to 60 was on April 4, when Trump’s retaliatory tariffs were announced and when the Bank of Canada’s interest rate peaked in October 2023.
This brings us to the question: Is this an opportunity to buy the dip?
When you ask yourself this question, list the reasons to buy and not buy. Here are three reasons why I am bullish on the stock.
Descartes Systems thrives on trade complexities
The reason for the dip is macro uncertainty. A slowdown in trade volumes might slow Descartes’s revenue growth temporarily. However, Descartes Systems is well-prepared to manage this uncertainty by offering global trade intelligence, customs, and regulatory compliance solutions. Descartes has brought together several players from across the globe on its platform and created a Global Logistics Network. Any signs of recovery in trade could boost growth for the stock.
Trump tariffs are already being challenged in court. Even if tariffs bring a structural change in the global supply chain, companies could use Descartes’s Global Logistics Network and other solutions to facilitate the change.
Descartes Systems can withstand a slowdown
Descartes Systems has shown resilience in past crises. Its revenue grew 7% even in the 2020 trade shock when lockdowns brought several trades to a standstill but elevated e-commerce volumes. The company has also thrived in the 2018 United States-China trade war. However, Canada is feeling more heat in the 2025 trade war than in the 2018 trade war.
Taking the worst-case scenario of a possible recession and minimal trade volumes, Descartes Systems’s revenue might remain flat.
The company is in a net cash position and has an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of 44%. It has the flexibility to withstand a slowdown and still report profits thanks to its asset-light model and strong cash reserve.
Descartes Systems’s secular growth prospects remain intact
Descartes can not only withstand a slowdown but also seize the recovery in trade with its supply chain offerings. It continues to acquire companies and improve its offerings to remain competitive and relevant to customers. Its flexible revenue model allows clients to use its solutions for a single trade, for a single service like Global Trade Intelligence, or an end-to-end solution. The company’s secular growth of facilitating the transit of goods, services, and information amid trade complexities remains intact, making it a buy-the-dip.
Investor takeaway
Descartes has been growing its revenue and earnings by adding new service offerings and clients. It is a growth stock that has surged at a five-year compounded annual growth rate of 20%. You could consider investing a large amount while it trades near $140 and holding it for at least five years to build wealth.
