Canadian Software Stocks

Kinaxis Inc Valuation – August 2018 $TSE:KXS

Company Profile (excerpt from Reuters): Kinaxis Inc. is a provider of cloud-based subscription software for supply chain operations. The Company offers RapidResponse as a collection of cloud-based configurable applications. The Company’s RapidResponse product provides supply chain planning and analytics capabilities that create the foundation for managing multiple, interconnected supply chain management processes, including demand planning, supply planning, inventory management, order fulfillment and capacity planning. The Company’s customers include companies in various industries, including high technology and electronics; aerospace and defense; life sciences and pharmaceuticals; industrial, and automotive. Its sales and operations planning solutions include demand planning, aggregate supply planning, capacity planning (constraints), inventory planning and optimization, and inventory management. The Company’s supply chain management applications include capacity planning, order fulfillment and supplier collaboration.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of TSE-KXS – August 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $2,495,212,529 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.84 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 9300.00% Pass
6. Moderate PEmg Ratio PEmg < 20 107.82 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 11.52 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.84 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $0.89
MG Growth Estimate 15.00%
MG Value $34.35
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $12.94
MG Value based on 0% Growth $7.58
Market Implied Growth Rate 49.66%
Current Price $96.20
% of Intrinsic Value 280.06%

Kinaxis Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the lack of earnings stability over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $-0.17 in 2014 to an estimated $0.89 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 49.66% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Kinaxis Inc revealed the company was trading above its Graham Number of $13.47. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 107.82, which was above the industry average of 47.04. Finally, the company was trading above its Net Current Asset Value (NCAV) of $5.84.

Kinaxis Inc scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $5.84
Graham Number $13.47
PEmg 107.82
Current Ratio 2.84
PB Ratio 11.52
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2018
Total Current Assets $289,554,000
Total Current Liabilities $101,912,000
Long-Term Debt $0
Total Assets $356,681,000
Intangible Assets $0
Total Liabilities $133,266,000
Shares Outstanding (Diluted Average) 26,749,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.29
Dec2017 $0.98
Dec2016 $0.55
Dec2015 $0.69
Dec2014 -$0.01
Dec2013 -$0.63

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.89
Dec2017 $0.57
Dec2016 $0.28
Dec2015 $0.10
Dec2014 -$0.17
Dec2013 -$0.21

Recommended Reading:

Other ModernGraham posts about the company

Kinaxis Inc Valuation – Initial Coverage $TSE:KXS

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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