Analysts follow as many as 20 stocks, most of which are rated ‘buys’. Of those buys, an analyst has one or two special favourites seen as most suitable for new buying. For Richardson GMP’s Rob Panes there is just one ‘best buy’–information technology stock Kinaxis Inc., a publisher of cloud-based subscription software that enables customers to improve and accelerate analysis and decision-making across supply chain operations.
The best decisions are those made by people who gather all the right information, set the right priorities, and act at the right time. Of course, it is much easier to sort out what the right information, priorities, actions and timing are in hindsight.
Even if humans have all the right facts to work with, which is challenging enough, it is an even taller order to expect them to rapidly make choices on a global scale that consider every contingency, and for those choices to actually be effective.
Much as technology has aided planning in our personal lives, businesses are increasingly adopting supply chain software that can track their operations in minute detail and account for factors that the human mind could easily forget or ignore.
Investing veteran Rob Panes argues that such software, when made well and tailored to a company’s specific needs, provides such an advantage that businesses would certainly benefit, if they only knew these solutions were available.
Mr. Panes is director, wealth management and a portfolio manager at Richardson GMP in Toronto.
He says that his ‘best buy’ selection, Kinaxis Inc. (TSX—KXS), not only builds excellent supply chain software, it also has a plan to speed up widespread adoption.
“It’s very hard to get clientele. The fact is, if companies take on this software, it will make them money, but it’s still very hard to get in the door so they have very strong strategic alliances with Accenture and Deloitte,” he explains.
Landing and expanding
Kinaxis’ flagship product is the RapidResponse supply chain software, which can be used across a series of industries, from defence and aerospace to life sciences.
RapidResponse is a revolutionary, subscription-based supply chain software, says Mr. Panes. Using RapidResponse, clients can streamline and modernize their supply chains, “from the supplier of raw materials, right through to the end user”.
By tweaking each stage of production to optimal performance, users reduce manufacturing costs, inventory costs, as well as delivery costs, and enable more timely delivery of product and more satisfied customers, the portfolio manager says.
Consulting firms Accenture and Deloitte are central to Kinaxis’ “land and expand” strategy for selling its services.
Since Accenture already has long-standing, trusting relationships with many companies acting as an advisor or consultant, it can more easily convince management of RapidResponse’s effectiveness. For example, one company began using RapidResponse in 2011. Between then and 2016, its supply chain costs went down from $255 million to $143 million.
Accenture does not receive any payment for endorsing RapidResponse. However, it fields a team to handle the transition and training required to switch over to the supply chain software platform.
Once adopters see the benefit on their bottom lines, they often expand their use of Kinaxis services, thus increasing business.
Deloitte recently entered a similar partnership with Kinaxis. Mr. Panes adds that Kinaxis expects its base of strategic partners to continue growing over time and notes that this approach helps to cut down on marketing expenses but its strategic partners still have an incentive to sell. Mr. Panes says SAP and Oracle are the main major suppliers of enterprise software, but asserts that Kinaxis is much more user-centric, better-tailored and more detailed as well.
Given its remarkable ascension, the portfolio manager urges investors: “You have to close your eyes to where it’s been and open them to where it’s going to go.”
“This is a company that is still in its infancy with years of growth ahead of it,” he says. Sales of US$70 million in 2014 rose to $91 million in 2015. Analyst consensus predicts revenue of $116 million this year, $140 million in 2017, and $173 million in 2018.
Turning to general short-term market indicators and predictions, companies are trading at reasonable valuations in Canada and the United States, according to Mr. Panes. The trick for stock pickers in the coming months is to find companies whose earnings will grow by 10 per cent or more next year in a two per cent growth environment, he says.
“The market hates uncertainty and now that we have gotten through the U.S. election, the uncertainty as to who would be the winner has lifted so I think we’ll get back to stocks moving on their fundamentals. And the fundamentals are good.”
Investor’s Digest of Canada, MPL Communications Inc.
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