Absolute Software Corporation (TSX: ABST) is engaged in the development, marketing, and provision of a cloud-based endpoint visibility and control platform that provides management and security of computing devices.

Why should Investors make an EXIT?

• Degraded financial numbers: The company displayed week financial statistics in Q1 2022. However, it increased its topline but did not maintain that momentum in the bottom line. Furthermore, it incurred greater operational expenses, resulting in an operating loss of USD 4.8 million, compared to a profit of USD 4.1 million in the prior quarter.
• Lower margin profile v/s Industry: In Q1 2022, the company failed on maintaining its pace and witnessed lower performance under operating margin matrix, consisting of operating margin and net margin, which exhibits the extreme pressure on the company.
• Weak liquidity profile: In Q1 2022, the company's current ratio stood at 0.74x compared to the industry median of 1.85x. This lower ratio against the industry indicates that the company's short-term obligations are growing faster than its resources to cover them, which is not a good indication.
• Heavily leveraged: The company reported a greater number in its long-term debt, which stood at USD 265.4 million during the reporting period. The corporation had no long-term debt prior to this. The interest expense in the given period increased as a result of the larger debt. Furthermore, the company's debt to equity ratio was 15.99x as of September 30, 2021, significantly higher than the industry median of 0.16x.
• Exhausted technical indicators: The stock is continuously trading in a downward channel making lower lows and lower highs, reflecting lack of strength in the stock. Furthermore, we believe that it may continue its bearish trend.

Source: REFINITIV, Analysis by Kalkine Group 

Valuation Methodology (Illustrative): EV to Sales based

Analysis by Kalkine Group 

Stock recommendation

The company gained some traction and saw an increase in its top line, but its operational expenses skyrocketed in the reporting period, resulting in an operating loss of USD 4.8 million, compared to an operating profit of USD 4.1 million in the prior period. Furthermore, the company's long-term debts increased by USD 265.4 million, resulting in higher interest income in the reported period and a debt-to-equity ratio of 15.99x, substantially higher than the industry median of 0.16x, indicating a balance sheet burden. Furthermore, technical indicators indicate that the stock price may consolidate or correct from here. Hence, considering the aforesaid rationales and valuation done, we have given a “Sell” recommendation in the stock at the closing price of CAD 9.65 on January 21, 2022.

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.