Don't Miss AI's Third Wave
Artificial intelligence (AI) has made significant strides in recent years and is pervasive in nearly all industries today. Most firms, particularly in the technology sector, say they use the popular technology or have AI tools to attract customers.
The upward trajectory of the AI global market appears unstoppable because it paves the way for new possibilities and existing opportunities. People in the investment world believe AI stocks are potential goldmines as wider adoption would lead to enormous profits.
If you want to ride on the AI wave and exposure to the space, watch out for Enghouse Systems Limited (TSX:ENGH) and Tecsys Inc. (TSX:TCS). Both companies have AI platforms but with different orientations and target markets.
The former provides contact centre technology, while the latter offers practical supply chain AI technologies. Either way, the businesses have solid growth potential and their stocks could deliver massive gains.
Turning contact centres into growth engines
Markham-based Enghouse Systems, an enterprise software solutions provider, relies on two business segments for growth. Enghouse Interactive (EI) in the Interactive Management Group (IMG) is the lead subsidiary providing contact centre software, services, and video solutions.
The primary goal of EI is to enhance customer experience (CX) and transform a contact centre from a cost centre into a powerful growth engine. In the first half of fiscal 2023, Enghouse System’s revenue increased 1.1% to $219.9 million, although net income fell 25.1% year over year to $29.6 million due to incremental operating costs. The IMG accounts for 55.7% of total revenue.
Enghouse made seven significant acquisitions from fiscal 2021 to the present to expand its CX portfolio. The acquisitions have expanded the company’s recurring revenue base. Its two most recent acquisitions have been integrated into the business and extended Enghouse’s presence in the enterprise video and expense management markets.
Management said economic factors are favourable for acquisitions, notably small-cap companies. Thus, Enghouse will continue its successful acquisition strategy for geographic, product, and scale expansion. It will target companies with strong recurring revenues (between $5 million to $55 million).
This AI stock is a rare gem as most growth-oriented tech firms don’t pay dividends. At $31.62 per share (-11.2 year to date), the dividend yield is 2.8%.
Warehouse management experts
Tecsys leverages its supply network experience to help organizations transform their supply chains and achieve full potential. The $438.4 million company from Montreal develops supply chain AI technologies that integrate with customers’ warehouse management systems (WMS) and other digital infrastructure.
The AI technology in WMS automatically adjusts parameters to accommodate changing business conditions without any human intervention. It can also predict events and prescribe courses of action.
In fiscal 2023, total revenue increased 11% to $152.4 million versus fiscal 2022. However, net profit declined 53% year over year to $2 million. Mark Bentler, Tecsys CFO, said, “This is our first fiscal year where SaaS revenue represents over half of our recurring revenue.” He adds that the growing SaaS revenue provides greater visibility into future revenue.
At $30.06 per share, Tecsys investors are up 13.6% year to date and partake in the modest 1.7% dividend.
Potential winners
Enghouse Systems and Tecsys are legitimate players in the AI industry. Both companies have solid growth prospects that could turn their stocks into winners.
