NOW stock has a huge upside, Echelon says

A couple new developments have raised its share price, but Echelon analyst Rob Goff thinks there is still a lot of money to be made on NowVertical Group (NowVertical Group Stock Quote, Chart, News, Analysts, Financials TSXV:NOW)

On December 12, NOW announced it would partner on predictive analytics projects with Google in Peru for RIMAC Seguros y Reaseguros. The company also said it would partner with Google in Mexico on another project.

In the same press release, NOW announced a contract with Arcos Dorados (McDonald’s LATAM), the world’s largest independent McDonald’s franchisee.

“These strategic collaborations in Peru and Mexico, and our recent partnership with Arcos Dorados (McDonald’s LATAM), represent notable milestones for Nowvertical, highlighting our dedication to delivering industry-leading services and solutions on a global scale,” said CEO Sasha Grujicic. “These new partnerships not only offer an enticing gateway to esteemed organizations but also serve as crucial stepping stones for cultivating enduring relationships with regionally respected brands and organizations.”

The analyst says this is more evidence that NOW is a real player in the AI space.

“We believe the announced collaborations and contracts give further validation of the Company’s technical capabilities while providing support for strong double-digit organic growth (arguably beyond that within our baseline forecasts). In the past two weeks, the Company has announced over 12 contracts with strategic expansions in LATAM and the UAE,” he wrote.

In a research update to clients December 13, Goff maintained his “Speculative Buy” rating and one-year price target of $0.90 on NOW, implying a return of 173 per cent at the time of publication.

The analyst thinks NOW will post EBITDA of $3.2-million on revenue of $61.6-million in fiscal 2023. He expects those numbers will improve to EBITDA of $7.4-million on a topline of $69.8-million the following year.

“NOW shares reflect 0.6x/0.5x and 1.4x/1.2x 2023/24 baseline revenues and operating profits, respectively,” Goff said of the company’s valuation. “We are encouraged to see the emerging EBITDA as a valuation consideration where NOW’s 2023/24 EV/EBITDA valuation stands at 14.3x/5.2x – a level we see as significantly undervalued given NOW’s growth trajectory and prospective scale efficiencies. Using the NOW Operations EBITDA, our EV/EBITDA would move our 2023 and 2024 multiples to 4.8x and 3.1x, respectively. With evidence of scale efficiencies against these corporate expenses, we expect investors to consider both EV/EBITDA calculations. While considered high-water marks, C3.ai (AI-NYSE, NR) and Palantir (PLTR-NYSE, NR) are valued at 9.1x/13.4x and 16.2x/19.9x 2023 revenues/profit, respectively. The YTD gains of C3.ai and Palantir at 152% and 177%, respectively, clearly reflect bullish investor outlooks toward AI and data analysis applications. We see the Company’s stated focus on vertical intelligence as a focused AI application where vertical-specific algorithms are honed through focused training. Our Big Data & Analytics peer set trades at 8.1x/10.3x/11.6x 2023 revenues/profits/EBITDA.”