Replying to a question from a member of his Inner Circle, Pat McKeough looks at Kinaxis Inc., a provider of supply-chain management software. Many large, well-established companies in diverse industries use the firm’s services, and its revenue and earnings keep rising. However, the company’s share price has nearly tripled since Kinaxis first sold shares to the public in mid-2014. Pat looks at whether the company’s high rate of growth can justify its high share price.
Q: Pat: Can I get your opinion on the company called Kinaxis? Thanks.
A: Kinaxis Inc. (symbol KXS on Toronto; www.kinaxis.com) provides cloud-based software that big companies use to manage their supply chains. The business concept is SaS—software as a service. Subscribers pay a monthly or yearly fee for software implementation, support and upgrades. This provides the software company with steady income, rather than series of larger one-time payments for the initial sale and upgrades.
Kinaxis’s main product is RapidResponse. Applications include matching functions like production and inventory to demand, analyzing sales patterns and forecasting.
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This Ottawa-based company has a much longer history than most new issues, and is much more mature as a business. It was founded in 1984. It operated under the Webplan Inc. name until May 2005, when it changed its name to Kinaxis. It first sold shares to the public at $13 and began trading on Toronto in June 2014.
The stock wasn’t a hot new issue. It moved sideways during its first month of trading. Then it began moving up, and has been doing so almost steadily ever since. It has now roughly tripled since coming on the market.
Growth stocks: Client base includes many well-established firms
The company’s customers are in a range of industries, including technology, aerospace, defence, pharmaceuticals, automotive and consumer goods. It sells its products directly in North America, Western Europe and Japan and through partners and resellers in other regions. Customers include Lockheed Martin, Merck, Volvo, Cisco, Celestica, Qualcomm, Olympus, Konica Minolta, Teradyne and Casio.
Kinaxis’s revenue rose quickly, from $46.7 million in 2012 to $70.1 million in 2014 (all figures except share price and market cap in U.S. dollars). The company reported earnings per share, before one-time items, of $0.27 in 2012, $0.34 in 2013 and $0.41 in 2014.
In the three months ended September 30, 2015, Kinaxis’s revenue jumped 38.8%, to $23.7 million from $17.7 million a year earlier. Excluding one-time items, earnings per share rose sharply, to $0.20 from $0.13.
Kinaxis holds cash of $90.6 million, or $3.76 a share, and has no debt. It spends a high 17% of its sales on research and development.
To expand its client base, the company recently entered into an agreement with Accenture plc (symbol ACN on New York) under which Accenture will provide development and training services for RapidResponse. Accenture is the world’s largest consulting firm by revenue; it has over 336,000 employees and clients in 120 countries. The two companies will also work together to expand Kinaxis’s supply-chain software offerings.
The stock trades at 46.9 times the company’s forecast 2016 earnings of $0.76 a share.
Recommendation: Kinaxis is okay to hold, but only for aggressive investors.
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Replying to a question from a member of his Inner Circle, Pat McKeough looks at Kinaxis Inc., a provider of supply-chain management software. Many large, well-established companies in diverse industries use the firm’s services, and its revenue and earnings keep rising. However, the company’s share price has nearly tripled since Kinaxis first sold shares to the public in mid-2014. Pat looks at whether the company’s high rate of growth can justify its high share price.
