Once in a while, you come across a stock which looks like a promising investment. You know for sure that the stock can double your money in three to five years. Descartes Systems (TSX:DSG) stock is trading near its 10-month low, creating an opportunity to buy the dip and book your spot in the next growth cycle. The stock is worth investing $5,000 in as it has ample growth opportunity. Let us understand the risks and rewards.
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Understanding the opportunities Descartes Systems can unlock
Descartes Systems is a logistics and supply chain management solutions provider. But unlike its peer Kinaxis, which relies on long-term subscriptions, Descartes adopts a usage-based model. If your company wants to use the platform for a single consignment, or only for a specific use such as customs compliance, or an end-to-end solution, Descartes provides that flexibility. Thus, its share price tends to move seasonally, increasing in August and September ahead of the holiday season sales as e-commerce volumes pick up.
Descartes’ solutions not only helps plan your supply chain but also execute it. It provides inventory management, route tracking, custom forms, and many other services companies need to execute the trade. Thus, the business benefits from higher trading volumes as well.
The tariff uncertainty has slowed trading activity in a few sectors. The company is seeing a slowdown and has resorted to cost-cutting measures, such as cutting 7% of its workforce to keep its operations in sync with the demand. The stock market has reacted negatively to this. But the company has cut costs only to maintain the 45% adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin amid a temporary slowdown.
The tariff uncertainty could either lead to a change in the supply chain or the reaching of a trade negotiation solution. When industry players find a way around it, trade volumes will surge to make up for the lost time. Descartes would be prepared to help companies adopt to the change efficiently. This could accelerate Descartes’s revenue in the coming year and drive the stock up.
Past growth cycles
Descartes’s strength is its Global Logistics Network (GLN), which can help companies restructure their supply chain. Let’s take the case of 2021 when the pandemic drove e-commerce volumes. Descartes’s revenue accelerated to 22% from 4% a year ago. The 22% growth rate is its highest in 11 years.
| Year | Descartes Revenue ($ Millions) | Revenue growth |
| 2014 | 170.9 | 13% |
| 2015 | 185.0 | 8% |
| 2016 | 203.8 | 10% |
| 2017 | 237.4 | 16% |
| 2018 | 275.2 | 16% |
| 2019 | 325.8 | 18% |
| 2020 | 348.7 | 7% |
| 2021 | 424.7 | 22% |
| 2022 | 486.0 | 14% |
| 2023 | 572.9 | 18% |
| 2024 | 651.0 | 14% |
In 2023, Descartes also saw revenue growth, of 18%, as the Russia-Ukraine war disrupted the oil and gas supply chain. This created a new opportunity for North American liquified natural gas exports to Europe, driving Descartes’s revenue.
Those who invested in Descartes stock in 2020 saw a 50% jump in 2021, and those who invested in 2022 saw a 30% jump in 2023. And the stock has surged 100% in five years. Moreover, the company has scaled to a level that its earnings per share (EPS) are growing at double the speed of its revenue. Its revenue grew at a five-year average annual rate of 15% while EPS grew at a rate of 30%.
What to expect from Descartes’s stock?
The growth potential of the stock is high as it still trades 19% below its all-time high of $177.98. DSG is a resilient growth stock, which means it will keep making new highs in growth phases. The stock has to grow 23.4% to reach its all-time high before rallying above it. The current dip is an opportunity to invest $5,000 and boost your portfolio returns in the next five years.
