While the broader markets trade near all-time highs, Descartes Systems Group (TSX:DSG) is down almost 50% from record levels.
The Waterloo-based company operates a global logistics network that connects shippers, carriers, governments, and logistics providers through its cloud-based platform.
Descartes doesn’t sell enterprise software in the traditional sense. Instead, it operates a massive network that provides companies with real-time data on shipments, customs clearance, tariff calculations, and freight tracking. The business generates revenue through subscriptions and transaction fees as customers move goods across borders.
In the fiscal third quarter (Q3) of 2026 (ended in October), the Canadian tech stock posted record quarterly revenue of US$187.7 million, up 11% year over year. Net income jumped 20%, and cash flow from operations rose 22% to US$73 million.
Tariff chaos creates an opportunity for the TSX stock
Over the past year, businesses have faced a U.S.-China tariff truce, new tariffs on metals and timber, and the temporary implementation of BIS 50, a regulation that expands the list of sanctioned parties U.S. companies must screen against.
When rules change rapidly, customers need timely and accurate updates to keep operations running. Descartes provides tariff data, sanctioned-party screening, and trade-flow research that businesses rely on to avoid costly mistakes.
Foreign trade zones are another growth driver. These designated spaces allow U.S. companies to import goods and defer tariffs until the products are ready for final delivery.
With tariffs elevated and unpredictable, more businesses are using free-trade zones to manage cash flow. Descartes has the regulatory expertise and software to manage the complex reporting requirements.
The elimination of the de minimis exemption for e-commerce imports created another windfall. Previously, foreign sellers could ship goods duty-free to U.S. customers if orders totalled less than US$800. That exemption vanished, forcing these sellers to file customs paperwork and pay tariffs on every shipment.
Descartes nearly doubled its revenue in this segment within months. Competitors struggled to handle millions of daily transactions. Descartes processed them easily because its network already handles massive volumes for FedEx, DHL, and UPS.
AI accelerates the network
CEO Ed Ryan spent considerable time on the earnings call explaining how AI impacts the business.
AI tools require large volumes of clean, real-time data to operate effectively. In logistics, that means shipment locations, carrier schedules, customs rules, and tariff rates. Descartes stores and updates this information continuously.
As customers deploy AI agents to automate supply chain processes, they need more data from Descartes, not less. The company gets paid as customers access and process more information through its network.
MacroPoint, Descartes’s shipment-tracking business, is a perfect example. It used AI agents to contact truckers without automated tracking systems. In just a few months, AI-driven outreach connected with more than 300,000 drivers, bringing 180,000 new truckers onto the network.
MacroPoint’s tracking rate jumped from 87% to 90%, the highest in the industry by 20 points.
Network effects create a moat
Descartes operates a network business, not a software business, so it’s impossible to compete with the Canadian mid-cap company until you replicate all of its connections.
Companies won’t switch to a competitor with half the network coverage because logistics issues require robust solutions. Building that from scratch would take years and massive capital. Descartes has been building this infrastructure for decades, creating a durable competitive advantage.
The company generated US$241 million in adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) over the past nine months, up 15% year over year.
Management ended Q3 with US$279 million in cash and zero debt. The company also has a US$350 million undrawn credit facility available for acquisitions.
The long-term setup
Descartes continues to deliver 10%-15% EBITDA growth year over year. Over the past 15 years, organic services revenue growth accelerated from low single digits to 7% in Q3.
The TSX tech stock trades at 28 times forward earnings, which is not too steep. Comparatively, adjusted earnings are forecast to expand by 21% annually through fiscal 2030. If it is priced at the current multiple, DSG stock should gain 70% over the next three years.
