Money Smarts: A Tech Stock That’s Close To Home
Canada’s high tech market is lacking in big names. But here’s a small company that is doing well.
The shares of U.S. tech giants posted big gains after Amazon, Alphabet, and Microsoft released their latest financial results that handily beat analysts’ estimates.
By the close on Oct. 27, Amazon stock had roared through the $1,100 level (figures in U.S. currency), gaining more than $128 on the day, or 13.2 per cent. Alphabet (the parent company off Google) was ahead $42.25 to finish at $1,033.67. Microsoft added more than $5 (6.4 per cent) to finish at $83.81.
Canadians could only watch with envy. Our own high-tech market is pitifully small compared to that of the U.S. The Information Technology sector comprises only 2.82 per cent of the S&P/TSX Composite Index and there are only 18 companies in the S&P/TSX Capped Info Technology sub-index. It has had a good run this year, up 18.2 per cent to Oct. 27, well ahead of the TSX overall. But there are no real superstars on it. BlackBerry is a shadow of its former self and the new up-and-comer, Shopify, took a beating when a notorious U.S. short seller attacked it. It has recovered somewhat but it still trading at more than $14 below its mid-September high.
That said, there are some companies on our limited high-tech list that are worth considering. They’re not glamorous but they are solid and profitable and would be a good fit for anyone wanting to add a Canadian technology firm to a portfolio.
One of them is Descartes Systems Group (TSX: DSG, NDQ: DSGX), based in Waterloo, Ontario. Here are the details.
Background: Descartes specializes in business software designed to facilitate logistics, financial controls, inventory, customs clearance, and freight tracking. Customers include transportation firms, manufacturers, distributors, retailers, customs brokers, and government agencies.
Performance: The stock has been gradually moving higher this year, starting off at about $28 a share in January and closing on Friday in Toronto at $37.83. The Nasdaq price is US$29.45. These levels represent an all-time high for the stock.
Recent developments: As far as tech firms go, this is a mature business. Revenue growth is slow but steady – second quarter sales (to July 31) were $57.3 million (the company reports in U.S. dollars), up 13.5 per cent from the same period in 2016. Net earnings were $7.2 million ($0.09 per share, fully diluted) compared to $5.8 million ($0.08 per share) the year before.