With recurring revenues rising and the uptake of its digital car retailing
solutions, Quorum Information Technologies (TSXV: QIS) is still an
under-the-radar stock with 75% upside potential into 2022.
Last year at this time, Investorfile was bullish on
Quorum Information Technologies' growth outlook post-COVID. (See: Right now is
a good time to buy stock in Quorum Information Technologies).
Unfortunately, today COVID is still among us, but recent financials indicate
that the Company’s growth profile is operating like it is post-COVID, and the
stock price needs to catch up.
Quorum Information Technologies Inc. (TSXV: QIS – C$1.04)
is a company that focuses on serving the automotive retail business by offering
auto dealerships technology-enabled end-to-end business processes. For auto dealerships, Quorum offers a product suite
which includes its core XSellerator Dealership Management System ("DMS”) and
other divisions' products that are bundled into Performance Packs for
dealerships’ sales and service departments. The Performance Packs combine
specific integrated Software-as-as Service (SaaS) products to help dealers
increase customer transparency and satisfaction and drive additional revenues
into the dealership.
Quorum’s product suite is marketed as a
monthly service offering, which an auto dealership can subscribe to either
individually or to one or more products in the suite. Quorum’s key products are
the XSellerator DMS (including Communicator), DealerMine Service CRM (including
eService), Autovance Desk and Advantage DMS. Additional products or services
include: XSellerator Sales CRM, DealerMine, Sales CRM, My Deal, Power Lane, QAnalytics, Autovance Menu and DealerMine BDC services.
We recommended this Company as a small cap value
investment opportunity in 2014 (See: Quorum
Information Technologies delivers value for auto dealerships and small cap
investors) and the stock has been a strong performer on
Investorfile’s list of Top Ideas. Since that first report, the stock has
had a high-point return of 725% and is currently still up 420% in value.
Despite its impressive past performance,
we feel small cap investors have somewhat forgotten about this stock, and
therefore Investorfile is of the opinion that Quorum’s investment story should be
revisited. As such, we suggest several reasons why.
First, we highlight that the growth rate
in revenues is accelerating again. In Q2 of 2021, Quorum reported C$9.1 million
in revenues, of which SaaS revenues (C$6.4 million) grew 5% from Q1 alone. The
Company’s recurring revenues from BDC services in Q2 was C$2.4 million, up 9%
from the preceding quarter. In total, this is materially more growth than
recent quarters and the outlook remains strong. In Q2 alone, Quorum added 15
new auto dealerships as new customers for its software and services, and it now
serves a total of 1,025 dealerships across Canada
and the USA.
Another reason for our optimism is on the product
development front. Quorum has newly released and/or improved products that
embrace the online experience, which include its My Deal, QAnalytics and
PowerLane service offerings for dealerships. The My Deal product allows an auto
dealership’s customer to manage the new car purchase process totally online.
The PowerLane product enables service customers of dealerships to review and
approve suggested vehicle repairs online. The initial uptake of its online
products is driving new revenue growth for Quorum as it becomes one of the
leaders in digital car retailing and service solutions for auto dealerships.
Online auto vehicle sales and servicing solutions are significant growth market
Finally, Investorfile believes that this
Company’s stock valuation is still inexpensive. Quorum is a growing SaaS
business that generates EBITDA margins at about 15% annually. We note today
that the stock trades at about two-times its current annual recurring revenue run rate of about C$36 million. Most of its small cap SaaS peer group with similar growth rates are stocks that
trade at revenue multiples in excess of three times annual revenues. That said,
we feel Quorum’s stock is still under-the-radar and a re-rate closer to its comparables allows for 75%
of upside potential to its current share price over the next year, making it an attractive small cap stock investment to buy today.
Quorum Information Technologies has approximately 72.8 million shares outstanding.
Company website: www.quoruminfotech.com
Author Ownership Disclosure: TSXV: QIS – Yes
share price accumulation target of $0.40 for Quorum Information
Technologies was initially reached on August 17, 2015
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
responsibility to update the information contained in this article. The
information contained within this article should not be construed as offering
of investment advice. Those seeking direct investment advice, should consult a
qualified, registered, investment professional. This is not a direct or implied
solicitation to buy or sell securities. Readers are advised to conduct their
own due diligence prior to considering buying or selling any stock.
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.