KXS:CC - This Canadian AI Stock Is Growing at a Breakneck Pace
2024-05-16 20:00:00 ET
U.S. artificial intelligence stocks are getting a lot of attention these days. Between Microsoft’s investment in OpenAI and NVIDIA’s massive AI chip windfall, the NASDAQ has been seeing a lot of action.
But AI isn’t exclusive to companies South of the border. Far from it. There are many Canadian companies that are doing leading-edge AI research and incorporating AI into their products. In this article, I will explore one Canadian AI stock that is growing even faster than the U.S. tech giants.
Kinaxis
Kinaxis Inc ( TSX:KXS ) is a Canadian supply chain software company. Its main product is RapidResponse, an AI-powered supply chain app that lets users track inventory, customer purchasing patterns, and more. Ultimately, its insights help users order inventory and other inputs when they need them, so they aren’t left with unfulfilled orders or inventory lying idle on the shelves.
Kinaxis RapidResponse is widely used in the manufacturing industry. One manufacturing manager I spoke to said that it is the industry standard for its product category. In this article, I will explore Kinaxis and its incredible growth story up close, so you can decide if it might be a good fit for your portfolio.
High growth
One thing that Kinaxis undeniably has going for it is high growth. In the trailing 12-, 3- and 5-month periods, it delivered high growth in revenue, earnings, and free cash flow. In the table below, I have included these growth rates, on a compounded annual (CAGR) basis.
| 12 month |
| 3 year |
| 5 year |
| Revenue |
| 20.3% |
| 25% |
| 23% |
| Earnings (EPS) |
| 72% |
| 30% |
| -3.8% |
| Free cash flow (FCF) |
| 108% |
| 13.2% |
| 10.3% |
As you can see, apart from the 5-year EPS growth, all of the growth rates were excellent in all of the measurement periods looked at. Also, the fastest growth was observed in the 12-month period, which means that growth is accelerating!
A good market position
One big thing that Kinaxis has going for it is a strong competitive position. There aren’t really any companies that do the exact same thing Kinaxis does. SAP has supply chain management software, but it isn’t identical to Rapid Response. If you want AI-powered supply chain insights that you can put to work for you immediately, you really need Rapid Response. This insight comes from a manufacturing manager I spoke to, so it’s from a good source who is close to the matter.
Valuation
Last but not least, we get to the one part of the analysis that is not so favourable for Kinaxis:
The valuation. KXS stock is pretty pricey going by most conventional valuation metrics, trading at:
- 61 times earnings.
- 7.1 times sales.
- 7 times book value.
- 43 times operating cash flow.
It’s not a cheap stock by any stretch of the imagination. However, fast-growing companies have a way of catching up with their apparently pricey valuations. So, Kinaxis may still prove worth it in the end.
Foolish takeaway
AI is the ‘hot sector’ these days, and Kinaxis is one of the hottest Canadian companies in it. With high growth, a good market position, and plenty of AI capability, it may be worth the investment. Just mind the valuation.
The post This Canadian AI Stock Is Growing at a Breakneck Pace appeared first on The Motley Fool Canada .
Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends Kinaxis, Microsoft, and Nvidia. The Motley Fool has a disclosure policy .
2024