2 quality growth stocks breathe life into the tech sector

Image source: Getty Images

Tech stocks have been underperformed this year, although the sector has been on a roll lately with its 10.38% gain in five days. In addition, on June 24, 2022, almost all technological constituents of the S&P/TSX Composite Index closed in positive territory. However, Kinaxis (TSX:KXS) and Tecsys (TSX:TCS) are back on investors’ radars after rising 5.79% and 10.44%, respectively, on Friday last week.

Both growth stocks help industry leaders Shopify, Light tradeand Nuvei bring the damaged area back to life. The latest display of pricing power from Kinaxis and Tecsys makes them worth buying. Additionally, some market analysts claim that quality growth stocks may also offer better protection against high inflation.

Visibility to the future

Kinaxis’ lead over the past five days (+20.75%) is more than double the broader sector. Due to its strong revenue growth in the first quarter of 2022, analysts covering the tech stock are optimistic and recommend a Buy rating. They predict that the current stock price of $144.94 will climb 44% to $209.20 in 12 months.

The $3.99 billion company provides cloud-based subscription software for supply chain operations to customers in Canada and around the world. Kinaxis SaaS (Software-as-a-Service) platform features include advanced planning, sales and operations planning, supply and demand planning, inventory management and services command and control center.

In the first quarter of 2022, SaaS revenue and total revenue increased by 22% and 70% compared to the first quarter of 2021. Notably, the profit reached 12.52 million US dollars, compared to a net loss of 1.53 million US dollars in the same quarter last year. Cash flow from operating activities and annual recurring revenue (ARR) increased 7% (to US$21.99 million) and 21% (to US$4,232 million) year-on-year on the other.

Kinaxis President and CEO John Sicard said, “We are pleased to report a strong start to the year, with first quarter financial performance exceeding our expectations and ultimately improving outlook for the full calendar year.

For the full year 2022, management expects total revenue to be between US$345 million and US$355 million. He also expects SaaS to drive 23-25% revenue growth. Additionally, the company’s long-term contracts provide visibility into future contract revenue.

Solid revenue growth

Tecsys is still trading at a discount, despite the impressive 10.44% one-day gain. At $36.50 per share (-30.48% year-to-date), the tech stock is paying a dividend of 0.85%, a rarity for a growth-focused company. Still, the market analysts’ 12-month average price target is $53.29, representing a potential return of 46%.

Management will report its fourth quarter and fiscal year 2022 this week, but the prior quarter results were already encouraging. In the third quarter of Fiscal 2022 (quarter ended January 31, 2022), SaaS revenue and ARR increased 49% and 17% compared to the third quarter of Fiscal 2021.

Total revenue of $35.4 million was a record, although net income was down 50% year over year. Nonetheless, it was a strong quarter given the 12th consecutive quarter of revenue growth. Its Chief Financial Officer, Mark Bentler, said: “We are pleased with another quarter of solid revenue growth despite significant foreign currency headwinds.”

Supply Chain Solutions

Supply chain disruption is one of the major factors that trigger market instability. Kinaxis and Tecsys provide powerful supply chain solutions to help businesses navigate and thrive in this complex environment.