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Dye & Durham (TSX:DND): Canada’s Next Big SaaS Tech Success?

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Software-as-a-Service (SaaS) has been wildly popular with investors looking for lucrative long-term bets. Technology companies focused on this business model have created recurring streams of immense cash flows. Consequently, growth-seeking investors have billions into these stocks, pushing their valuations to a record high. 

Unfortunately, most of the best SaaS stocks are listed in America. Canadian investors have a very small pool of potential SaaS targets. Last week, this pool expanded with the initial public offering of Dye & Durham (TSX:DND). The stock doubled on its first day of trading, indicating relentless demand for high-margin, low-risk enterprise software stocks like this. 

Here’s a closer look at Dye & Durham’s underlying business and its fundamental valuation. 

SAAS stock

The Vancouver-based company provides cloud-based software for legal professionals and large legal firms. The software helps them keep track of data, store customer details, share files and comply with local corporate data regulations. In other words, it’s the back office for most legal teams. 

In fact, the 20 largest legal firms in Canada all use Dye & Durham’s software. According to their latest filing, their average client has used their services for over 16.6 years. The platform currently has 25,000 active accounts, with a 2% churn rate and 109% dollar-retention rate over the past year. 

That level of market share and customer retention is unprecedented. By focusing on a relatively underserved niche, D&D has managed to create a robust and thriving business.

D&D Valuation

At its currently market price ($13.4), the company is worth $555 million. Over the past 12 months, the company reported $66.45 million in revenue and $30 million in earnings before interest, taxes, depreciation and amortization (EBITDA).

This means the stock is trading at a price-to-sales ratio of 8.35 and an enterprise value-to-EBITDA ratio of 6.9. Those metrics are perfectly fair for a company that’s reporting nearly 70% in annual sales growth. At that pace D&D could grow into and beyond its current valuation within just a few years. 

As my Fool colleague Joey Frenette noted, most SaaS stocks trade at significantly richer valuations. Canada’s most popular SaaS stocks are currently trading at P/S ratios of between 20 and 60. 

In short, D&D looks like an underrated growth stock trading at a reasonable valuation. The stock is down marginally since its IPO last week, which makes it even more attractive now. Keep an eye on it.

Foolish takeaway

A combination of high-margins, recurring revenue and stickiness make software-as-a-service providers some of the best growth stocks on the market. However, quality SaaS stocks are rare, which is why most of them are overbought and overvalued. 

Recent listing Dye & Durham seems to have slipped under the radar. The stock is still trading at reasonable valuations, despite reporting double-digit revenue growth and a solid portfolio of clients.

The company’s underlying fundamentals and grip on the legal market niche could make it one of the best SaaS stocks in the country. Keep an eye on it.

If you’re looking for the next big tech stock…

This Tiny TSX Stock Could Be the Next Shopify

One little-known Canadian IPO has doubled in value in a matter of months, and renowned Canadian stock picker Iain Butler sees a potential millionaire-maker in waiting…
Because he thinks this fast-growing company looks a lot like Shopify, a stock Iain officially recommended 3 years ago – before it skyrocketed by 1,211%!
Iain and his team just published a detailed report on this tiny TSX stock. Find out how you can access the NEXT Shopify today!

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Fool contributor Vishesh Raisinghani has no position in any of the stocks mentioned.

The post Dye & Durham (TSX:DND): Canada’s Next Big SaaS Tech Success? appeared first on The Motley Fool Canada.



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Apple & Tesla Announced Stock Splits; Here’s How It Could Impact Your Investments

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What’s A Stock Split And How It Could Affect Your Current Holdings

Apple and Tesla, arguably two of the hottest companies on Wall Street, both announced stock splits in recent weeks. The question is, can it positively affect your current holdings? First, let’s understand what a stock split is. Essentially, a stock split is exactly what it sounds like. One share is splitting up into a few individual shares. This often comes after a particular share price has been inflated to a level that may be ‘too high’. For example, in Tesla 5-for-1 stock split example, one share worth $1500 now will be broken into 5 shares worth $300 each. This way, it will lower the entry barrier for investors who wish to buy a stake in the company.

A stock split can typically result in a share price increase following a decrease immediately after the split. Since many retail investors find the stock now more affordable, they end up boosting demand and driving up prices. A stock split also reminds investors that the share price had been increasing in the past. It is not surprising that many investors extrapolate the historical growth into the future and bid up the share price again. One thing to also note is that even though the number of outstanding shares increases and stock price decreases, the market capitalization doesn’t change.

Who Tend To Benefit From Stock Splits?

Generally speaking, stock splits are neutral events for current shareholders. In the case of the Apple 4-for-1 stock split, you used to own 1 share, but moving forward you will own 4, but the total value remains the same. Essentially, a stock split wouldn’t change the company value, all else being equal. But the truth is, all else is rarely equal when we apply it in the market.

Both TSLA stock and AAPL stock jumped after the announcement. This may be the fifth time for Apple to do a stock split, but it is Tesla’s first. The price change will be more dramatic for Tesla, whose stock split will bring individual share to the $300 range. Compared to Apple’s post-split of $100 range, Tesla’s post-split stock might find it harder to attract smaller investors.

Certain online brokerages offer investors to buy fractional stocks. Conceptually, it offers the same thing in the absence of stock splits. Then again, not all brokerages will offer such services and it’s not that easy to move shares between brokerages. Therefore, it will not create a much stronger demand than actual stock splits. Now, like it or not, news of stock splits tend to cause share prices to jump. And that is not really rational. But who cares? As long as the prices go up, existing shareholders would not be complaining.

Tesla & Apple’s Stock Splits Could Restart The Trend Again.

Is stock splits a thing in the past? Tracing back the history, in 1997, 102 companies in the S&P 500 split their stocks, and in 2016, only 7 companies did so, a decline of more than 90%. That is about to change when two of the hottest tech companies announced they will be splitting their shares at the end of this month. The zero brokerage fees environment gives companies a greater incentive to split shares today. In addition, it creates a more affordable and accessible stock for Robinhood traders to start trading. After all, many retail investors are nonetheless still prone to judging how “expensive” a stock is based on its dollar value. That said, it is not surprising to see other tech companies like Amazon, Shopify, or Alphabet make such moves on their own timeline.

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Air Canada (TSX:AC) Stock: Can You Still Get Rich From It in 2020?

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Instead of resuming flight, the woes of Air Canada (TSX:AC) are mounting in the third quarter of 2020. Canada’s flag carrier’s problems are over the top following the net loss of $1.75 billion in the preceding quarter. In the first three months of 2020, the company reported $1.05 billion in net income.

Air Canada’s CEO Calin Rovinescu said about the first-quarter loss, “No adjectives can adequately describe the pandemic’s cataclysmic effects upon our industry, nor can numbers fully quantify the extent of financial devastation.” Investors hoping to get rich from the airline’s stocks rebound are at a loss for words with the widening losses.

Dark to darker

The dark period of Air Canada is getting darker as the months roll by. Mr. Rovinescu and the management team of Air Canada are begging the government to ease the coronavirus travel restrictions. He adds that Canada’s federal and inter-provincial restrictions have been among the most severe in the world.

Air Canada’s second-quarter results reflect the unprecedented and devastating impact of COVID-19 on the company and the aviation industry in general. Many global airlines are declaring bankruptcies, while others are receiving government bailouts.

Air Canada filed for bankruptcy court protection in 2003, and the nightmare is resurrecting in 2020. Rovinescu was in charge of the restructuring program for 17 years, where recovery took 18 months.  The stock went on to become among the recent decade’s best and top-performer in 2019.

The COVID-19 episode is entirely different from the 2003 experience. Air Canada’s capacity went down by 90% to 95% in the first two quarters. In the second quarter, revenue fell by 89% versus the same period in 2019, while passenger volume was 4% lower than the total volume.

Management expects the third quarter capacity to be not more than 20%. Although cash-on-hand on June 30, 2020 was over $9 billion, Air Canada estimates the daily net cash burn to be anywhere from $15 million to $17 million. There’s no clear runway given the operating environment.

Impossible chances

Air Canada is not imposing its will on the government to open the border to the U.S. The suggestion is to adopt less restrictive or evidence-based measures similar to those applied in Europe and other countries. Perhaps Canada can replace the quarantine requirements for countries with low COVID-19 risks from a public health perspective.

Can you still get rich if you pick up the airline stock today? No one has a crystal ball to foretell what’s in store for investors. The price fell 299% from $48.51 on December 31, 2019 to $12.15 on March 19, 2020. As of August 10, 2020, the share price is $16.23 or a 33.5% climb from its COVID-19 low.

Management is almost certain that returning to pre-corona levels will take at least three years. Only a miracle, like a successful clinical trial and eventual FDA approval of a vaccine, can stack the odds in favour of Air Canada. There are cheaper stocks whose businesses have brighter futures.

Speaking of potential to get rich from Air Canada in 2020…

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Fool contributor Christopher Liew has no position in any of the stocks mentioned.

The post Air Canada (TSX:AC) Stock: Can You Still Get Rich From It in 2020? appeared first on The Motley Fool Canada.



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Monday Morning Markets – Moving Past 5 Million Virus Cases

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5,045,564.

That's how many cases the US officially has (not that we are counting).  162,938 Americans are dead, that's much harder to cover up.  Globally we are about to cross 20M cases at 19,877,261 with 731,570 deaths so the US has more than 25% of the global cases and 22% of the deaths – despite having just 3.7% of the population so Trump is right – America is leading the world by a factor of 6 – no one transmits the virus or dies from the virus like we do!  MAGA!!!

The markets don't seem to mind and we're still up around record highs as the worst things are for the American people, the better things are for American Corporations, apparently, as the stimulus fairy comes and pays them visit after visit.  President Trump played the fairy this weekend, waving his executive action wand and unconstitutionally wishing for various bribes to the voters:

  • $400/week supplement to unemployment checks (states need to pay for it and Federal supplement comes from Disaster Fund that's meant for hurricanes, etc).
  • Suspend payments on Student Loans through 12/31 (but not the interest).
  • Extend eviction protection through 12/31 (the courts can't handle the backlog anyway)
  • Defer Payroll Taxes through 12/31 (a disaster for the Social Security and Medicare System and also puts a huge tax burden on the employees at the end of the year they are unlikely to manage for, which will be blamed on Biden as a tax increase, of course) 

In other words, Trump's Executive Orders are a whole lot of nothing but Congress and the White House have still failed to reconcile Democrats' $3.4Tn coronavirus-relief plan and Senate Republicans' far smaller $1.1Tn proposal.  The Paycheck Protection Program expired Saturday. The future of the small business rescue plan is in limbo.  “Meet us halfway and work together to deliver immediate relief to the American people,” Pelosi and Schumer said in a joint statement. “Lives are being lost, and time is of the essence.”      

Joe Biden, noting that Trump signed the “half-baked” orders at his golf club in New Jersey, said they short-change the unemployed and trigger a “new, reckless war on Social Security."  “These orders are not real solutions,” soon to be President Biden said. “They


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