Tariffs, the Iran war, and escalating geopolitical tensions. If it wasn’t for the artificial intelligence (AI) boom, we would have ended up in a recession. Rising oil prices, higher fuel usage as blockades in war zones force longer routes, and changing trade regulations have made it tough and costly to ship anything. One magnificent Canadian stock caught between global complexities and still growing is Descartes Systems (TSX:DSG).
Wait! Growing? Hasn’t Descartes Systems slipped 37% since the trade war began in January 2025?
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This magnificent Canadian stock is down 37%
At its peak of $168–170 in January 2025, Descartes was trading at a lofty valuation of 64 times price-to-equity (P/E) ratio and 14 times price-to-sales ratio. The dip has corrected the valuation to 38 times and 9 times, respectively.
The question is whether this valuation justifies the mid-teens percentage increase in revenue and adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). For this, we need to understand market dynamics of logistics and supply chain management.
Challenging market dynamics: An opportunity for Descartes Systems
The biggest shock of 2026 is the US-Iran war that has choked shipping in the Strait of Hormuz. Shipments are piling up, scheduling has become unreliable, sailing time has stretched, and fuel usage and insurance premiums have increased. Since ships now have to take the longer route, they are passing on the cost to customers. Most customers who avoided air carriers because they were expensive are finding them cheaper than waterways.
Some of the shipment volume is shifting from ocean to air, especially for semiconductors and AI infrastructure. Air cargo is also continuing to benefit from e-commerce volumes. The biggest impact is on road transport, as reduced trucking volumes are pushing small carriers out of the market.
These market dynamics have affected trade volumes, which is hurting Descartes Systems’ share price. Higher trade volumes convert to higher service revenue. However, growing uncertainty and trade complexities are making existing customers use more services as new customers adopt Descartes’ solutions.
Descartes’ Global Trade Intelligence solution is driving organic revenue as more companies access its tariff and duty content, sanctioned party screening, and foreign trade zones. Its proprietary database provides updated information amid tariff uncertainty. Descartes’ Datamyne research tool is helping companies adopt strategies to deal with tariff uncertainty, such as different sourcing, classification of goods, and shipping routes.
The increasing fuel costs and driver wages are driving demand for fleet performance management and routing to improve fleet efficiency. Descartes is also seeing demand for transport management tools like MacroPoint, which tracks shipments in real time.
Descartes grows revenue and earnings
Despite slowing trade volumes and growing competition, Descartes has been growing its revenue by 15% year-over-year, of which around 9.5% is organic growth in services, and that too when the freight market is down. This organic growth is coming from increasing demand for the above solutions. Any change in tariffs fuels this growth.
Descartes is using low trade volumes and depressed valuations to acquire companies with proprietary unique data, deep domain expertise, and a sticky customer base. It acquired Idelic for a proprietary database of over 40 billion miles of data and telemetry on historical accidents. Descartes is using this data to incorporate driver behaviour and safety signals in routing planning and execution. While the acquisition brings new customers, it also strengthens Descartes’ offerings, giving customers a one-stop shop for all their logistics needs at a lower cost.
Descartes is also adopting AI agents to gather data (like truck rates for carrier selection) and automate workflow (like arrival and departure confirmation). Recurring revenues, AI efficiency, and accretive acquisitions have helped Descartes surpass its long-term adjusted EBITDA margin of 40–45% and report a 46% margin in the fiscal first quarter of 2027.
The company used the stock price dip to buy back shares and has plans to buy back an additional 10% of the outstanding shares by December 2026.
Is Descartes stock a buy-and-hold for a decade?
Unlike other software stocks hit by AI, Descartes has corrected and continued to improve fundamentals even when trade is weak. AI has improved its efficiency and prepared Descartes to grow at an accelerated rate when trade volumes recover, making it a buy-and-hold for a decade.
