2-for1 Sale
In this era of near-zero interest rates, it’s hard to imagine any publicly traded company avoiding the allure of cheap financing to grow their businesses. Fear not, because I’ve got three TSX-listed companies that have actually forsaken debt without sacrificing growth.
First up is Ottawa-based Kinaxis Inc. (TSX:KKS), a provider of cloud-based subscription software that helps clients efficiently handle their supply chain and logistics operations. In a 24/7 world that expects delivery now, not tomorrow, the difference between success and failure usually lies in the hands of those responsible for the supply chain.
Now, before diving into some of the good news behind Kinaxis’s growth, it’s important to remind investors that its stock isn’t for everyone. Trading at 75 times earnings, value investors certainly won’t be interested and GARP (growth at a reasonable price) investors might also want to take a pass.
But for those willing to wait for this growth stock to mature, the results over the long term should be very satisfying.
Here’s why.
Not only is its top line growing—Q1 2016 saw 37% year-over-year growth to US$27 million—but so too is the bottom line. In the first quarter its adjusted EBITDA increased 44% year over year to US$8 million accounting for 30% of revenue. In 2016 Kinaxis expects revenue to grow by 20-22% to at least US$108 million. Assuming it hits guidance, the company will have achieved a milestone of generating US$100 million or more in annual revenue for the first time in its history.
The most exciting part of Kinaxis’s growth is its professional services revenue—the fees charged to customers to help them integrate its RapidResponse solution through training, etc.—which grew 107% in Q1 2016 to US$8.3 million. Its professional services segment has seen its contribution to the company’s overall revenue increase by 11 percentage points to 31% in the span of four quarters, providing the company with two very balanced (not to mention recurring) revenue streams.
I see good things ahead for Kinaxis.
Diamonds are a girl’s best friend. At least that’s how the saying goes. And when it comes to diamonds, no company is trying harder to deliver the sparkling gems than Lucara Diamond Corp. (TSX:LUC) a Vancouver-based company whose Karowe mine in Botswana is expected to produce over 350,000 carats of diamonds in 2016, generating upward of US$220 million in revenue for the company.
Last year was a down year for the company as diamond prices softened, but make no mistake; despite fewer people getting married in North America, over in China, the demand for diamonds is booming.
According to Tiffany & Co. CEO Frederic Cumenal, “In China, 13.2 million couples are getting engaged every year … 15 years ago, very few were buying rings. Now, it’s 30 to 40 percent, and we expect it to increase even more, maybe even to 80 percent.”
Somebody has to supply those diamonds. Why shouldn’t it be Lucara, one of the best producers of IIa diamonds in the world? At the end of June, it put its 1,109-carat Lasedi La Rona diamond up for auction at a minimum bid of US$70 million; due to Brexit uncertainty, the diamond failed to sell at auction.
Don’t be deterred by this temporary disappointment. Long term (three to five years), I see it hitting double digits, but not without a decent amount of volatility.
My third and final stock is getting pummeled so far in 2016, up just 1.1% year-to-date through July 18 compared to 10.7% for the S&P/TSX 60. I’m speaking about Winpak Ltd. (TSX:WPK), one of Canada’s biggest suppliers of packaging materials.
Investors couldn’t ask for a more reliable company when it comes to revenue growth. Since 2006 it has increased revenues on an annual basis in every year except 2009—not a bad record of achievement. In that time it’s grown revenues by 78% to US$797 million at the end of 2015, while earnings are up by an even more impressive 209% over the same period.
Winpak’s shown over the past decade that slow and steady wins the race; in the process, it’s delivered an annualized total return of 18.7% to shareholders, 16 percentage points greater than the index.
There’s no reason to expect its record of achievement won’t continue.
