Skip to main content
number cruncher

What are we looking for?

For this number cruncher we will look at valuations for 10 Canadian application software companies trading on the TSX.

The screen

We used StockCalc’s screener to select the 10 largest application software companies on the TSX. We then used StockCalc’s valuation tools to calculate fundamental, or intrinsic, valuation for each stock to see if they are under- or overvalued compared with their price.

Overview of the techniques used:

  • Discounted cash flow (DCF value) is a valuation technique in which cash-flow projections are discounted back to the present to calculate value per share;
  • A price comparables (price comps) technique values the company on the basis of ratios from selected comparable companies;
  • An adjusted book value (ABV) is calculated by multiplying book value per share by its 10-year average price-to-book ratio;
  • If we have analyst coverage, we look at the consensus target price.

More about StockCalc

StockCalc is a fundamental valuation platform with tools to calculate and report on value per share for thousands of public companies listed on major North American stock exchanges. Globe Unlimited subscribers can subscribe to StockCalc using the promo code ‘Globe30′, which offers a 30-day free trial and special pricing for the second month.

What we found

Evaluating 10 Canadian software stocks

NameTickerMarket Cap ($ Mil)Recent Close ($)StockCalc Val ($)Diff (%)DCF Value($)Price Comps($)ABV ($)Analyst Target ($)1 Year Return(%)Dividend Yield(%)
Constellation SoftwareCSU-T561962651.822578.93-2.71685.051883.012903.093844.5634.10.2
Open TextOTEX-T1387751.3159.5816.1145.4993.8659.5884.602.22.6
Ceridian HCM HoldingCDAY-T1321685.9193.428.724.1485.9393.42175.7819.20.0
Descartes Systems GrDSG-T9133107.36107.710.358.0992.5479.11151.4834.60.0
Lightspeed CommerceLSPD-T268517.8130.8173.05.1039.84154.9745.43-38.00.0
Enghouse SystemsENGH-T206137.2938.112.230.4045.2554.6540.885.32.4


Application software is a broad category that includes software for the masses as well as specific applications for individual clients or sectors such as industrial, financial and health care markets. Firms in this category tend to channel cash flow back into growth instead of dividends. Analyst consensus estimates are higher than our models for the firms shown primarily because of more optimistic forward growth projections. We find with fast-growing companies, just to reach current price, our models would require growth rate projections well beyond what we would use.

Last week in the United States, most of the FAANG stocks – Facebook (now Meta), Apple, Amazon, Netflix and Google (now Alphabet) – reported earnings. Most came in at or above expectations, while Apple will report on May 4. In Canada our technology sector is dominated by software companies such as Shopify and Constellation Software. How did they and other Canadian tech companies fare and what is our valuation outlook for them? Let’s look at a few of these companies:

Shopify Inc. SHOP-T reports results on May 4, and analysts expect $1.4-billion in revenue for the first quarter of 2023 versus $1.2-billion of actual revenue in the same quarter a year ago. Shopify’s stock price has had a good return in the past year, up 21 per cent, with a lot of that because of the announcement in January of a price increase on monthly and annual subscriptions. Our weighted average valuation is considerably higher than Shopify’s current price and in line with analyst consensus.

Lightspeed Commerce LSPD-T has seen its share price drop by 35 per cent in the past 12 months and it is down 88 per cent from its high close of $158.93 on Sept. 22, 2021. Three of our four models price the stock at much higher than its current level and our DCF model is well below, but positive, which is encouraging as the company is still expected to report a loss for the quarter. Lightspeed will report fourth-quarter and full-year financial results before the markets open on May 18.

Docebo Inc. DCBO-T is a provider of cloud-based educational content management systems. The majority of its revenue is derived from customers based in North America. The company recently announced the acquisition of Peer-Board, a community platform for learning management systems. Our valuation models range both above and below the current price resulting in our weighted average valuation essentially at current price. Docebo will report first-quarter results on May 11.

You can see in the accompanying table the percentage difference between each stock’s recent closing price and its intrinsic value. The StockCalc Valuation column is a weighted calculation derived from our models and analyst target data.

Investing involves risk. StockCalc accepts no liability whatsoever for any loss or damage arising from the use of this analysis.

Brian Donovan, CBV, is the president of StockCalc, a Canadian fintech based in Miramichi, N.B.

Follow us on Twitter: @globeinvestorOpens in a new window

Report an error

Editorial code of conduct

Tickers mentioned in this story

Your Globe

Build your personal news feed

Follow topics related to this article:

Check Following for new articles