Kinaxis Inc. (TSX: KXS) has quickly emerged as a stalwart of Canada’s emerging tech landscape. The company is 35 years old but its track record since going public in 2014 has been truly remarkable. Over that period, the supply chain software company has returned 400% to stock holders. By leveraging cloud computing and machine learning, Kinaxis has grown its market share manifold over the years.
Kinaxis: Solid Value Proposition
A solid track record of revenue growth and synchronized global expansion have catapulted Kinaxis’ stock near the top of Canada’s mid-cap technology rankings. Since launching its public offering, Kinaxis has more than doubled its revenue, translating into a compound annual growth rate of 22%. It was business as usual in the most recent quarter, as the Ottawa-based company reported a 15% surge in sales. Subscription-based revenue, which accounts for more than 80% of sales, climbed 18%. Full-year revenue was $150.7 million, with total subscription sales reaching $117.8 million. Total revenue grew 16% compared with fiscal 2017.
By combining cloud computing with supply chain monitoring and logistics, Kinaxis has managed to diversify its business and revenue originations. As a result, the company’s top ten clients accounted for roughly 40% of its sales. This includes a growing focus on European markets, where the company managed to add brands like Novartis, Unilever, and Dyson. Some of Kinaxis’ other high-profile customers include Ford, Nikon, and Nissan.
Kinaxis’ subscription-based revenue model has made the company a cash-flow juggernaut – a feature that is accentuated by a low-debt balance sheet. It has also prioritized growth in six supply-chain intensive industries, including aerospace, automotive, technology, and consumer products.
KXS Stock Is Undervalued
Kinaxis shares have returned more than 13% this year, reflecting a strong recovery trend for the technology sector as a whole. At current values, KXS is trading 26% below its record high set last summer. If fundamentals are to be believed, Kinaxis stock still has considerable room for growth in the near future, especially if revenue history is a sign of things to come. And while earnings fell short of expectations during the most recent quarter, analysts expect profitability to grow at a compound annual growth rate of 19% over the next five years.
At this stage in its development, Kinaxis is unlikely to deliver mind-blowing profitability. As CEO John Sicard recently noted, the main objective is building a sustainable business model. Delivering key product innovations and expanding the company’s European sales team will help ensure future growth and profitability. In the most recent earnings call, Sicard said product innovation is top of mind in 2019.
According to Forbes, the size of the global cloud computing market is expected to top $400 billion by 2020. Kinaxis is using cloud computing to become an indispensable cog in global supply chains. For this reason, investors should expect big things.
For now, Kinaxis meets the definition of a Canadian mid-cap technology stock with plenty of upside. Investors should monitor its trajectory and product innovations as it seeks to onboard more big players from high-profile industries.
Disclaimer: Author has no investment stake in Kinaxis.