Valued at $925 million by market cap, Dye & Durham (TSX:DND) went public in July 2020 after pricing its preliminary public providing at $7.50 per share. The inventory touched an all-time excessive of $53 in February 2021 and presently trades 74% under document ranges. Let’s see if the TSX tech inventory can stage a comeback in September 2024 after trailing the markets within the final three years.
An outline of Dye & Durham
Dye & Durham is among the many world’s largest authorized software program suppliers. It supplies mission-critical methods that help enterprises in managing danger by accessing proprietary and non-discretionary information wanted for authorized transactions. Its software program streamlines and automates shopper consumption and onboarding processes, permitting authorized professionals to generate new enterprise, enhance buyer engagement, and handle compliance necessities.
DND inventory’s underperformance could appear complicated to market members, as the corporate has elevated income by 69% yearly within the final 5 years. So, let’s dive deeper.
Slower income progress and rising curiosity bills
I imagine there are three main causes for the weak efficiency of Dye & Durham inventory. First is the corporate’s decelerating income progress. After rising gross sales by 219% to $209 million in fiscal 2021 (resulted in June) and by 127% to $475 million in fiscal 2022, its income declined by 5% to $451 million in fiscal 2023. Within the final 12 months, Dye & Durham’s gross sales are down by a marginal 0.6% at $457.8 million.
Like most different tech shares, Dye & Durham loved sturdy demand amid the COVID-19 pandemic. Nonetheless, as economies reopened and inflation raised its ugly head, the rising price of debt and a sluggish macro financial system acted as headwinds for the corporate.
Second is the corporate’s narrowing revenue margins. In fiscal 2019, Dye & Durham reported gross sales of $43.8 million, a gross revenue of $41.3 million, and an working revenue of $16 million. This means that the corporate’s gross margins stood at 94.3% whereas its working margin was over 35%.
Within the final 12 months, Dye & Durham’s gross margins have fallen to 90.5%, whereas its working margin has declined considerably to 14.5%.
Third, the corporate’s rising debt stability has spooked traders as a result of steep rise in rates of interest. Its long-term debt elevated from $128.2 million in fiscal 2019 to $1.33 billion on the finish of the March quarter. On this interval, its curiosity bills rose from $7.3 million to $151.6 million.
Is DND inventory a great purchase proper now?
As historic efficiency doesn’t matter a lot to present and future traders, let’s see if Dye & Durham is an effective inventory to purchase proper now. It’s evident that the corporate has to generate sufficient money flows to help natural progress, goal accretive acquisitions, and repair its debt funds.
Dye & Durham just lately printed its preliminary outcomes for the fiscal fourth quarter (This autumn) of 2024. The corporate reported income of $120 million, a rise of 15% 12 months over 12 months.
Nonetheless, one key metric for traders is DND’s leveraged free money move of $28 million. This implies the corporate reported a free money move of $28 million after together with its curiosity payouts. Furthermore, analysts anticipate top-line progress to reaccelerate and develop by 7.8% to $487 million in fiscal 2025. Analysts stay bullish on DND inventory and anticipate it to surge roughly 60% within the subsequent 12 months.