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Aug
29
Quorum Information Technologies is an attractive buy as SaaS growth accelerates
Posted by: Gerry Wimmer
08/29/2021
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TOP IDEAS: 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 opportunities.

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


Investorfile's share price accumulation target of $0.40 for Quorum Information Technologies was initially reached on August 17, 2015


Read Disclaimer:

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.
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Hi Gerry, Your philosophy is focused on principles that have been shown to produce above average results over time and your record has clearly proven that. Congratulations on a great blog and thank you for the hard work that you do in sharing and updating your ideas; it is much appreciated.