Donald Trump’s trade wars are roiling world markets and hurting the economies of both China and the United States.
The tit-for-tat escalation of tariffs on both sides has disrupted long-standing supply chains and left businesses with international operations scrambling to find alternatives.
But there are some companies that are actually prospering from all this chaos. One of them is Descartes Systems Group Inc. Its stock (symbol DSG) closed Monday at $52.13 on the Toronto Stock Exchange. Its shares also trade on Nasdaq as DSGX.
Descartes offers a wide range of business software services including shipment management, transportation tracking, inventory management and freight auditing. Among its core services is a database of customs regulations, tariff rates and other content that can help businesses minimize trade barriers.
Imagine how important that information is to importers, exporters and brokers as they struggle to keep abreast of the latest tariff hikes and import restrictions.
The financial impact of this showed up in the company’s 2020 second-quarter results for the period ended July 31, which were released earlier this month. The company reported a 20-per-cent year-over-year increase in revenue, from US$67.1-million in 2018 to US$80.5-million this year.
The service sector of the business provided the biggest boost, with revenue increasing from US$59.7-million in 2018 to US$71.4-million this year.
“Our customers are facing a more dynamic business environment than ever, with global trade regulations changing on a daily basis and economic conditions in constant flux,” CEO Edward Ryan said in a news release. “This creates opportunities for companies that can react quickly with timely, reliable information, and challenges for those that cannot."
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were up 32 per cent to US$30.2-million from US$22.8-million a year ago. However, net income advanced only slightly to US$8.6-million from US$8.5-million the year before and was actually down on a per-share basis, to 10 US cents from 11 US cents.
The reason for the decline in earnings a share was a June public offering of 6.9 million common shares that raised approximately US$236.6-million. The increased share count reduced the earnings a share.
The company continues to expand by acquisition. On May 10, Descartes acquired Core Transport Technologies NZ Ltd., an electronic transportation network that provides global air carriers and ground handlers with shipment scanning and tracking services. The purchase price was approximately US$21.8-million.
In June, Descartes acquired STEPcom – a business-to-business supply chain integration network based in Switzerland – for US$18.6-million.
And in August, the company acquired all the shares of BestTransport.com Inc., a cloud-based transportation management system provider focused on flatbed-intensive manufacturers and distributors. The purchase price was US$11.7-million.
I think this stock still has upside potential and I am retaining it as a buy on my list. Ask your financial adviser whether it is suitable for you.
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.