Descartes Systems: A profitable ‘steady Eddie’ software stock

A growing global reliance on the computerized tracking of planes, trains and packages will continue to benefit shareholders of logistics company Descartes Systems Group Inc., analysts say.

Shares of the Waterloo, Ont.-based company, whose software helps companies locate their people and products, have been a steady climber in recent years, outpacing the broader markets.

Descartes has delivered strong revenue growth, driven by an aggressive merger-and-acquisition strategy.

Analysts like its prospects, as more businesses turn to Internet-based logistics software to improve productivity and cut costs.

Regardless of the recent hype around technology stocks, Canaccord Genuity analyst Richard Davis calls Descartes a "steady Eddie" that is "profitable, and conservatively managed."

"For conservative investors, we think DSGX is a worthy consideration for inclusion in a portfolio," he said in a note, referring to the company's Nasdaq ticker symbol.

Mr. Davis is one of nine analysts with a "buy" rating on the company, according to S&P Capital IQ. Two analysts recommend it as a "hold," but both say it's because the stock's valuation is slightly above its peers in the overall technology sector, and not because there isn't growth ahead.

"We like it as an acquisition growth story," said CIBC World Markets analyst Stephanie Price, who has a "sector performer" rating on the stock, which is the equivalent of a "hold."

"The downside is limited for these guys," she said. "It's a very stable company."

Her price target over the next year is $15.25 (U.S.), which is about 15 per cent above where the stock is currently trading on the Nasdaq. (Descartes also trades on the Toronto Stock Exchange).

The analyst consensus price target is $16.50, according to Thomson Reuters.

BMO Nesbitt Burns analyst Thanos Moschopoulos has a "market perform" rating, which is the equivalent of a "hold," and a $14.50 price target. He likes the outlook for the logistics business, particularly in the evolving retail sector.

"A significant part of Descartes' growth opportunity is that conventional bricks and mortar retailers are increasingly looking to compete with the online retailers by providing more rapid and flexible delivery options, and Descartes allows them to do that," Mr. Moschopoulos said.

About 46 per cent of Descartes' revenue is from the United States, 22 per cent from Europe, the Middle East and Africa combined, 10 per cent from each of the Netherlands and Belgium, 9 per cent from Canada and the rest from the Asia-Pacific region.

Descartes' shares have climbed by more than 25 per cent over the past year and about 245 per cent over the past five years. The share price hasn't changed a lot since the start of 2014, which analysts say is likely the result of a broader selloff in the technology sector.

The stock did get a boost in March when the company reported record revenue for the fiscal year ended Jan. 31 of $151.3-million, up 19 per cent from the previous year.

PI Financial analyst Pardeep Sangha is expecting record results again in the first quarter, which the company is expected to release before markets open on Thursday.

"Descartes is a consistent performer that always meets its quarterly and annual targets," Mr. Sangha said in a note. He has a "buy" on the stock and a $17 price target.

"We believe Descartes represents an attractive long-term investment opportunity for investors seeking a steadily growing and profitable technology company."

TD Securities analyst Scott Penner has "buy" on the stock and increased his price target to $17 in March after the company said it sees a number of acquisition opportunities.

Descartes' last deal was the $6.6-million acquisition of air cargo management company Computer Management USA in April.