The Canadian tech stock ideas from an RBC analyst are expected to keep on winning
SmallCapPower | November 16, 2020: RBC Capital Markets technology analyst Paul Treiber, in a recent note to clients, says he thinks the Canadian tech stock winners during the past year will keep on winning, believing the eCommerce uptake and momentum remains elevated compared to previous trends. He also argues that the recent pause in these tech-stock rallies have improved their risk/reward outlook. Today we feature three top Canadian tech stock ideas from the RBC analyst that should continue to benefit from the work from home trend and new digital initiatives.
*Returns are based on closing stock prices as of November 13, 2020
Kinaxis Inc. (TSX:KXS) – $174.61
Kinaxis is a vendor of SaaS solutions for supply-chain planning. Its software provides customers with a control tower view of their supply chains, highlighting issues that may affect their ability to meet customer demand. It also allows customers to perform scenario analysis, allowing them to determine the impact that different decisions might have on their operations. Kinaxis recently reported third-quarter revenue that rose 17% year over year to US$55.1 million, while its SaaS revenue increased 26%. KXS has a five-year cash flow growth rate of 13.5% as well as a five-year earnings per share growth rate of 19.9%. Mr. Treiber recommends investors maintain an overweight position in Kinaxis, given the company’s exposure to large growth opportunities that likely allow it to experience sustained/accelerating growth.
- Year-to-Date Return: 72%
Constellation Software Inc. (TSX:CSU) – $1502.16
Constellation Software develops and sells software solutions that are targeted to customers in specific vertical markets. The Company’s segments include: Public sector and Private sector. The Public sector segment develops and distributes software solutions primarily to government and government-related customers. Its Public sector segment includes Volaris Operating Group, Harris Operating Group and Total Specific Solutions Operating Group. The company recently reported a 50% increase in its Q3 net income to US$122 million. Constellation Software has more than 200 operating units, which compete in over 80 vertical markets. Constellation is an active acquirer, typically completing 40+ acquisitions each year.
- Year-to-Date Return: 14%
Enghouse Systems Limited (TSX:ENGH) – $64.01
Enghouse Systems provides enterprise software solutions and has grown through a ‘roll-up’ strategy, typically spending between $20 million to $40 million a year on acquisitions of good-quality software assets at bargain prices, which are used in contact centres, telecommunication networks, transportation systems and for video conferencing. During its third-quarter 2020, Enghouse generated revenue of $131.3 million, up 30% year over year, along with net income for the period that surged 77% to $26.0 million. ENGH stock has a current dividend yield of 0.8 % and the Company has increased its dividend for 12 straight years. Enghouse Systems has a five-year cash flow growth rate of 13.7% as well as a five-year earnings per share growth rate of 19.0%.
- Year-to-Date Return: 65%
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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