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On today’s TSX Breakouts report, there are 42 stocks on the positive breakouts list (stocks with positive price momentum), and 22 stocks are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that is on the negative breakouts list.

The share price has tumbled 16 per cent over the past eight trading sessions and the stock is approaching oversold territory. As of Sept. 14, the share price is up 81 per cent year-to-date.

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Given the stock’s strong performance (and high valuation), investors have been managing their risk and taking profits off the table – including company executives. However, analysts remain positive on the company’s growth potential. Delays in contracts experienced due to COVID-19 may simply be a timing issue, making management’s guidance too conservative.

This stock has 11 buy recommendations and the anticipated average one-year return is 34 per cent. The security highlighted below is Kinaxis Inc. (KXS-T).

A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.

The company

Ottawa-based Kinaxis is a cloud-based supply chain management software provider. In 2019, SaaS (Software-as-a-Service) revenue represented 62 per cent of total revenue. SaaS revenue provides revenue predictability and less variability, and as a result, is valued by investors.

In terms of geographical revenue breakdown, in 2019, 65.6 per cent of the company’s revenue was from the U.S., 21.5 per cent was from Europe, 10.2 per cent was from Asia, and the balance, less than 3 per cent, was from Canada.

The company’s customers are generally large corporations with intricate supply chain management needs. Clients include well-known companies such as Honda, Yahama Motor, Lenovo, Johnson Electric, Unilever, Ford, Toyota, Qualcomm, Raytheon, Honeywell, Jabil, Herman Miller, Nissan, and Schneider Electric. Year-to-date, the company’s top 10 customers accounted for approximately 31 per cent of total revenue, with no single customer accounting for more than 10 per cent of total revenue. The average subscription agreement lasts between two and five years.

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After the market closed on Aug. 5, the company reported better-than-expected second quarter financial results that sent the share price rising 3 per cent to a record closing high of $223.70 the following day.

The company reported revenue of US$61.37-million, up 45 per cent year-over year, and above the consensus estimate of US$52.4-million. SaaS revenue increased 26 per cent year-over-year to US$35.7-million, accounting for 58 per cent of total revenue. While term license revenue came in at US$10-million, up 314 per cent year-over-year. Professional services, and maintenance and support represented the balance of the revenue.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was US$22.47-million, well above the Street’s forecast of US$12.6-million. The adjusted EBITDA margin was 37 per cent.

The balance sheet remains healthy. At quarter-end, the company had over US$260-million in cash, cash equivalents, and short-term investments on its balance sheet, of which approximately US$60-million was subsequently used to fund the acquisition of Toronto-based Rubikloud (the acquisition was completed on July 2).

Total bookings during the quarter came in at US$37.1-million, down from US$47.5-million reported last quarter. As of June 30, backlog was US$333-million, down from US$345-million at the end of the previous quarter.

President and chief executive officer John Sicard said on the earning call, “Due to COVID-19, we have seen some customers and prospects expand their contract approval processes, which has, in some cases, delayed the signing of new deals. However, we remain confident in our ability to close these opportunities. Interest and engagement from the market remains extremely high and well-balanced across all geographies and verticals. We are full steam ahead on our planning -- planned hiring investments for 2020, and all of which were initially committed to based on their long-term value of Kinaxis.”

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Chief financial officer Richard Monkman added, “As John noted, COVID-19 has delayed the closing of certain opportunities as some prospects have implemented more rigorous processes for securing contract approvals.”

Management provided guidance for 2020, anticipating total revenue to come in at between US$216-million and US$220-million, up from its previous guidance of between US$211-million and US$215-million. SaaS revenue is expected to increase between 23 per cent and 25 per cent year-over-year. Adjusted EBITDA margin is anticipated to be between 20 per cent and 23 per cent, down from 30 per cent reported in 2019. However, this forecast may prove to be too conservative given that the adjusted EBITDA margin was 33 per cent in the first half of 2020.

Dividend policy

Management is focused on growth and as a result, the company currently does not pay its shareholders a dividend.

Analysts' recommendations

This mid-cap technology stock with a market capitalization of $4.9-billion is well covered by the Street.

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There are 11 analysts with buy recommendations and one analyst (Deepak Kausha at Stifel Canada) has a “hold” recommendation.

The firms providing recent research coverage on the company are as follows in alphabetical order: BMO Nesbitt Burns, Canaccord Genuity, CIBC World Markets, Eight Capital, ISS-EVA, Laurentian Bank Securities, National Bank Financial, PI Financial, RBC Dominion Securities, Scotiabank, Stifel Canada, and TD Securities.

Financial forecasts

The consensus revenue estimates are US$220-million in 2020, up from US$191.5-million reported in 2019, and expected to rise to US$259-million in 2021. The Street is forecasting adjusted EBITDA of US$53.5-million in 2020, down from US$57.7-million reported in 2019, expanding to US$62.5-million the following year. Adjusted earnings per share is anticipated to come in at US$1.14 in 2020, down from US$1.36 reported in 2019, and expected to climb to US$1.42 in 2021.

Over the past few months, earnings forecasts have held relatively steady. To illustrate, three months ago, the consensus revenue estimates were US$215-million for 2020 and US$258-million for 2021. The consensus EBITDA estimates were US$50.7-million for 2020 and US$64-million for 2021. The Street was anticipating earnings per share of US$1.19 for 2020 and US$1.54 for the following year.

Valuation

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According to Bloomberg, the stock is trading at an enterprise value-to-sales multiple of 13.4 times the 2021 consensus estimate, down from its peak multiple of over 16 times but still well above its three-year historical average EV/Sales multiple of over 8 times.

The consensus one-year target price is $242.45, implying the stock price may appreciate 34 per cent over the next 12 months. Individual target prices provided by 11 firms are as follows in numerical order: $170 (the low on the Street is from Deepak Kaushal at Stifel), $230, $240, four at $250, $252, $255, and two at $260.

Revised recommendations

In August, nine analysts revised their expectations – all higher.

  • Both Canaccord’s Robert Young and BMO’s Thanos Moschopoulos lifted their targets by $60 to $250.
  • RBC’s Paul Treiber raised his target to $240 from $220.
  • TD Securities’ Daniel Chan increased his target by $35 to $255.
  • Scotia’s Paul Steep raised his target to $252 from $194.
  • Gus Papageorgiou at PI Financial increased his targetto $250 from $199.
  • ISS-EVA’s Anthony Campagna upgraded his recommendation to “overweight” from “hold.”
  • Stifel’s Deepak Kaushal tweaked his Street-low target price to $170 from $165.
  • Laurentian Bank’s Nick Agostino raised his target to $260 from $210.

Insider transaction activities

Company leaders have been selling shares in the public market, taking profits off the table.

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Most recently, two management executives completed the following trades on Sept. 2.

President and chief executive officer John Sicard divested 9,200 shares at a price per share of $215.1125, trimming this particular account’s position to 224,367 shares. Proceeds from the sale exceeded $1.9-million, not including commission charges.

Chief financial officer and vice-president of corporate services Richard Monkman sold 20,000 shares at a price per share of $214.241 for an account in which he has control or direction over (2496248 Ontario Inc.), leaving 27,027 shares in this specific account. Proceeds from the sale totaled over $4.2-million, excluding trading fees.

In August, chief commercial officer Paul Carreiro, chief marketing officer Jay Muelhoefer, chief product officer Andrew McDonald, and chief human resources officer Megan Paterson all exercised their options and sold the corresponding number of shares received in the public market.

Chart watch

On Aug. 6, the share price closed at a record high of $223.70 with the share price more than doubling in value year-to-date. However, this uptrend reversed its course.

Year-to-date, the share price is currently up 81 per cent. Over the past eight trading sessions, the share price has declined 16 per cent. Yet, trading volume over recent days has remained at normal levels. Given the normal trading volume, the recent price weakness seems to reflect profit taking - not panic selling. For instance, on Monday the share price declined 0.8 per cent with just over 201,000 shares traded. To put this in perspective, the three-month historical daily average trading volume is approximately 184,000 shares.

In terms of key support and resistance levels, the share price is approaching initial technical support around $180. Failing that, there is strong technical support around $160, a 50 per cent retracement of the parabolic rally that lifted the share price from the $100 level in April to an all-time closing high of $223.70 in August. On a recovery, the share price faces a ceiling of resistance around $200, and after that around $220.

The relative strength index (RSI) is at 36, suggesting the stock is nearing oversold territory. Generally, an RSI reading at or below 30 reflects an oversold condition.

The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

Tuesday's TSX breakout stocks

Positive BreakoutsSept. 14 close
RZZ-TAbitibi Royalties Inc. $24.90
AEM-TAgnico Eagle Mines Ltd $114.00
AIM-TAimia Inc $3.83
BIP-UN-TBrookfield Infrastructure Partners LP $61.38
BU-TBurcon NutraScience Corp $2.64
GOOS-TCanada Goose Holdings Inc. $35.61
CNR-TCanadian National Railway Co $140.74
CP-TCanadian Pacific Railway Ltd. $402.42
CSH-UN-TChartwell Retirement Residences $10.83
CGG-TChina Gold International Resources Corp. $1.85
CMMC-TCopper Mountain Mining Corp $1.07
DII-B-TDorel Industries Inc $11.92
DRM-TDREAM Unlimited Corp $20.21
EMP-A-TEmpire Co Ltd $38.06
EDV-TEndeavour Mining Corp. $38.05
EIF-TExchange Income Corp $33.01
FVI-TFortuna Silver Mines Inc $9.88
HLF-THigh Liner Foods Inc $8.39
III-TImperial Metals Corp $3.56
ISV-TInformation Services Corp. $18.38
MMX-TMaverix Metals Inc. $6.97
MTY-TMTY Food Group Inc. $38.52
NGD-TNew Gold Inc $2.51
NUAG-TNew Pacific Metals Corp. $6.75
NWC-TNorth West Co Inc $33.21
NG-TNovagold Resources Inc $15.02
NTR-TNutrien Ltd. $52.40
OR-TOsisko Gold Royalties Ltd $17.13
PG-TPremier Gold Mines Ltd $2.96
PVG-TPretium Resources Inc $18.61
RPI-UN-TRichards Packaging Income Fund $81.50
ROXG-TRoxgold Inc. $1.77
SBB-TSabina Gold & Silver Corp $2.98
SIA-TSienna Senior Living Inc $11.96
TKO-TTaseko Mines Ltd $1.49
TECK-B-TTeck Resources Ltd $17.92
TIH-TToromont Industries Ltd $75.57
TCL-A-TTranscontinental Inc $16.49
TCN-TTricon Capital Group Inc $11.42
TRIL-TTrillium Therapeutics Inc $19.59
TC-TTucows Inc. $95.55
WM-TWallbridge Mining Company Limited $1.24
Negative Breakouts
ABT-TAbsolute Software Corp $13.26
CEU-TCanadian Energy Services & Technology Co $0.83
CUP-UN-TCaribbean Utilities Company Ltd. $14.70
CWEB-TCharlotte's Web Holdings Inc. $3.76
CPG-TCrescent Point Energy Corp $1.77
ENGH-TEnghouse Systems Ltd $68.93
HLS-THLS Therapeutics Inc. $14.60
HSE-THusky Energy Inc $3.66
IMO-TImperial Oil Ltd $19.00
KXS-TKinaxis Inc $181.08
MEG-TMEG Energy Corp $2.89
TPX-B-TMolson Coors Canada Inc. $46.24
MRC-TMorguard Corp. $111.23
MRT-UN-TMorguard Real Estate Investment Trust $4.49
PXT-TParex Resources Inc $15.54
PPL-TPembina Pipeline Corp $31.31
REAL-TReal Matters $23.40
SU-TSuncor Energy Inc $17.82
TEV-TTervita Corp. $2.65
TRZ-TTransat AT Inc $4.70
UNS-TUni-Select Inc $6.13
WTE-TWestshore Terminals Investment Corp $15.89

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