Cloud-based logistics and supply chain management solutions provider, The Descartes Systems Group Inc. (DSGX), has bolstered its machine learning and artificial intelligence (AI) capabilities in route planning and execution solutions with the acquisition of Foxtrot.
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Foxtrot provides machine learning-based solutions for mobile route execution. These solutions help to lower last-mile costs, and optimize customer service while also improving route efficiency and on-time performance.
Management Weighs In
Ken Wood, EVP of Product Management at Descartes, commented, “Advances in artificial intelligence and machine learning are making it possible for us to leverage increasing amounts of ‘real world data’ to better inform our route planning and execution solutions. By combining with Foxtrot, we are adding a team with deep domain expertise and proven technology that will help accelerate our efforts in this area.”
Edward J Ryan, the CEO of Descartes, added, “Foxtrot enhances our recent investment in Greenmile, as both companies have extensive experience in the retail food and beverage distribution vertical. We also see an immediate opportunity to leverage Foxttrot’s capabilities across our wider route planning and execution solution suite.”
Descartes funded the $4 million transaction with cash on hand.
Analyst Take
BMO Capital analyst Thanos Moschopoulos has reiterated a Hold rating on the stock alongside a price target of $81.
Overall, the Street is cautiously optimistic about Descartes with a Moderate Buy consensus rating based on four Buys and two Holds. The average Descartes price target of $87.33 implies a potential upside of 38.49%. That’s after a nearly 22.1% decline in share prices so far this year.
Valuation Speaks
Despite the recent price correction, the forward non-GAAP P/E multiple for Descartes is at 53.55, about 1.8x the sector median of 19.1, implying that the company is still comparatively expensive compared to its peers.
Concurrently, Descartes also commands a robust earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of 41%, implying the company has a better-optimized cost structure as compared to its peers, where the sector median is 13.6%.
Finally, the company is also better at generating cash, with a cash from operations figure of $176.1 million, compared to the sector median of $86.1 million.
Closing Note
Importantly, the move strengthens the company’s expertise in AI and ML. Moreover, Foxtrot’s current capabilities are complementary to Descartes’ planning and execution offerings. Furthermore, the TipRanks database highlights that blogger sentiment on Descartes is Bullish at present.
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