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This Undervalued Canadian Growth Stock Could Be Set for a Big Rebound

Even though the overall market indices are hovering around their peak values, many Canadian growth stocks haven’t managed to reach those historic heights again. A prime example of this is one particular stock.

Canadian tech stock

is

Kraken Robotics

(

TSXV:PNG

). With a

market cap

At a value of $644 million, Kraken Robotics’ stock has dropped 15% from its peak.

Kraken creates sophisticated aquatic tech such as sonar detectors, visual systems, resilient power cells designed for deep-sea conditions, and robotics gear tailored for remote-operated vessels. The company provides solutions encompassing items like the MINSAS sonar system and the KATFISH towable device, catering both defense and business sectors with precise ocean floor charting and superior subaqueous imagery capabilities worldwide.

Let’s explore why I’m optimistic about this small-cap stock at present.

Should you consider purchasing this growing Canadian equity?

Kraken Robotics reported unprecedented financial outcomes for 2024, witnessing a 31% surge in revenue to $91.3 million compared to the previous year, along with an increase of 47%, reaching $20.7 million, in adjusted EBITDA (which stands for earnings before interest, taxes, depreciation, and amortization). This firm, which focuses on developing underwater imaging sensors and robotics systems, anticipates even more substantial expansion in 2025.

CEO Greg Reid offered revenue projections ranging from $120 million to $135 million for 2025, suggesting a 40% increase at the mid-point, with adjusted EBITDA anticipated to reach $30 million. Additionally, Kraken’s sales pipeline has surged past $2 billion, up significantly from the previously stated figure of $900 million back in February 2024.

The various divisions within Kraken demonstrate strong progress. In 2024, the products sector, making up 72% of total revenues, experienced a significant increase of 26%, largely due to expansion in their underwater battery operations. Additionally, the service arm expanded by 47%, reaching $25 million, thanks to a rise in Sub-Bottom Imager tasks and Acoustic Corer initiatives.

The firm has obtained $45 million in subsea power contracts so far this year and intends to expand its output threefold by establishing a new 60,000-square-foot factory in Nova Scotia, which will commence operations before the end of the year. Additionally, CFO Joe Mackay mentioned that the company anticipates achieving positive working capital status in 2025.

Reid pointed out the increasing geopolitical strains driving faster investments in maritime tech, as countries prioritize safeguarding essential underwater infrastructures. Additionally, Kraken’s synthetic aperture sonar systems and undersea power innovations are becoming more popular among makers of unmanned underwater vehicles.

Although the offshore wind sector in the U.S. shows some weakness, Kraken anticipates sustained development within its commercial services division via geographical expansion and the incorporation of its newly obtained 3D at Depth subsea LiDAR enterprise.

Is this particular Canadian technology stock considered underpriced?

The management feels that Kraken is ideally placed to sustain an annual growth rate of 30-40%, attributing this forecast to heightened defense expenditures among NATO countries and associated allies along with growing requirements for submarine monitoring technologies.

During 2024, Kraken completed over $70 million in equity financing rounds and obtained an additional $45 million in fresh credit lines to fuel its growth initiatives.

Bay Street anticipates that Kraken will boost its revenues from $91.3 million in 2024 to an estimated $217 million by 2027. In terms of profitability, adjusted earnings are projected to rise from $0.09 per share in 2024 to around $0.13 per share in 2027. Additionally, analysts foresee the company’s free cash flow increasing to $22.5 million in 2027, compared with $16.7 million expected for this year.

Should Kraken’s valuation be set at 50 times future free cash flow, the Canadian equity could see an approximate increase of 75% within the coming two years. Based on average analyst price projections, they continue to show strong confidence and anticipate this technology stock will climb nearly 40% above its present value.

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This Declining Canadian Growth Stock Could Be Set for a Rebound After Dropping 15%

appeared first on

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Fool contributor

Aditya Raghunath

does not hold any shares in the stocks discussed. However, The Motley Fool holds positions in and recommends Kraken Robotics. The Motley Fool also has a

disclosure policy

.