TOP IDEAS: From 20 to 40 to 80 cents per share, Quorum Information
Technologies’ (TSXV: QIS) stock price could double again due to key growth
Investorfile's share price accumulation target of $0.40
for Quorum Information Technologies was reached on August 17, 2015.
For the record, we do not revise share price targets for our Investorfile Top
Ideas – Small Cap Value Stocks. We have positioned our blog to be one of the
first providers of a pragmatic perspective of a small cap company stock's
potential worth, where there may be uncovered value that has been largely
overlooked by the investment community.
The Investorfile blog made a bold statement in September
2015 in our post about Quorum Information Technologies Inc. We suggested that
the stock price could double from its then $0.40 level (See: Quorum
Information Technologies stock price could double again).That
post was written a short time after the stock had already doubled in value from
$0.20, the share price when we first recommended the Company’s
stock (See: Quorum
Information Technologies delivers value for auto dealerships and small cap
investors) to our list of Top Ideas. Since both blog posts,
Quorum’s share price has doubled twice and trades 300% higher in value.
Quorum Information Technologies Inc. (TSXV: QIS -
$0.80) develops, markets, sells implements and supports its proprietary
enterprise management software solution called XSELLERATOR™ for auto
dealerships using a Software-as-a-Service (SaaS) pricing model. XSELLERATOR is
a comprehensive dealership and customer management solution (DMS) that
automates, integrates and streamlines every department within an auto dealership
to save on costs while generating the auto dealership more services revenue.
Today, XSELLERATOR software is used in about 325 dealerships (rooftops) in Canada and the USA.
XSELLERATOR is a fully integrated DMS system with key
competitive advantages focused on improving the auto dealership’s customer’s
experience with its embedded Customer Relationship Management (CRM) system,
which is quickly gaining market share at the expense of antiquated software
competitors. With its seamless end-to-end dealer processes (sales, service,
parts, accounting), the XSELLERATOR is fully integrated with Original Equipment
Manufacturer (OEM) data – the Major Automaker brands.
Over the last three years to service more auto dealerships,
Quorum has made considerable investments with the ongoing strategic integration
of its XSELLERATOR software with additional OEM automakers, including Toyota /Lexus/ Scion in Canada, Ford/Lincoln for a total of 19 automaker brands to
date. The Company expects to integrate eight more brands into its software over
the next two years. In Canada
there are a total of 2,589 dealerships and 19,576 dealerships in the USA, across all
of the automaker brands.
The Company’s revenue model includes several components.
The biggest portion is generated from SaaS support revenue, which averages
about C$34,000 per dealership annually. Other revenues are earned from new
installs of XSELLERATOR software (C$50,000 per dealership) and training. Today
Quorum’s quarterly revenue run exceeds C$3 million (C$12+ million annually).
The vast majority of the Company’s revenues are recurring.
Based on a recent investor presentation (posted on the
Company’s website), we feel there are several key growth trends that support
the upward momentum in Quorum’s stock price. They include:
1. Capturing a bigger market
opportunity: Ongoing strategic integration with additional Automaker OEMs is
significantly expanding the total addressable market of auto dealerships for
the XSELLERATOR software both in Canada
and the USA.
This means more potential revenue growth for Quorum. Currently the Company’s
revenues are growing at rate of 10-15% annually.
2. Penetrating larger
Quorum continues to integrate new automaker OEMs they gain access to large
multi-OEM Dealer Groups who have ownership of many auto dealerships and brands,
thus leading to bigger sales opportunities. Currently 24% of the Company’s
total revenues are generated from auto dealerships owned by dealer
3. Growing revenues per customer: The average recurring
support revenues per dealership generated by Quorum are up by 20% in the last
two years, which should increase further as Quorum’s software offering expands
with new modules.
We acknowledge that the stock price of Quorum has doubled
twice in value already and that current stock valuation is no bargain based on
historical financial results. But, based on the above growth trends,
Quorum’s business is showing a great deal of momentum. We feel that the
Company is still in the early stages of a multi-year growth trajectory and
the business will accelerate even faster 2017. Given this, there is a
strong argument that the Company’s stock price can still move progressively
higher over time and even double in value once again (unless Quorum is taken
Quorum announced that the Company will be releasing its 2016 annual results
on April 20 (after market close) and will hold their first ever investor conference call on the
following day. We expect the results will show that revenue growth was strong year
over year. We note that last year the Company made significant investments in R&D
and hired many new employees to meet future demand. As such, we anticipate
earnings growth may be minimal in 2016 but start accelerating in 2017 and
The Company has approximately 52 million shares
Quorum Information Technologies website: www.quorumdms.com
Author Ownership Disclosure: TSXV: QIS - Yes
This article is for informational purposes only. This article is based on the
author's independent analysis and judgment and does not guarantee the
information's accuracy or completeness. The information contained in this
article is subject to change without notice, and the author assumes no
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Investorfile is not engaged in
an investor relations agreement with Quorum Information Technologies Inc. nor
has it received any compensation from Quorum Information Technologies Inc. for
the preparation or distribution of this article.
The author of this article has
acquired and may trade shares of Quorum Information Technologies Inc. through
open market transactions and for investment purposes only.