While everyone’s obsessed with big tech, a quiet compounder in logistics software just sold off hard.
With recurring revenue, fat margins, and a balance sheet that’s built for this rate environment, the pullback may be the entry point you were waiting for.
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A Message From HUB Cyber Security Ltd.
Some stocks grind higher for years. Others can move in days.
The difference often comes down to supply.
In this case, the supply is razor-thin. Just 9.7 million shares in the float, leaving very little paper available to trade.
Now imagine what happens when fresh demand hits a float this small. It’s like a spark in dry grass. Moves can be fast, powerful, and hard to ignore.
That setup is already in motion.
This company just landed a $25 million recurring compliance contract, a $23 million (€20M) European banking overhaul, and raised $20 million to accelerate US expansion. Each milestone makes it harder for Wall Street to overlook what’s happening here.
Yet the valuation is still microscopic: $21 million market cap.
Compare that to Palantir at $366B, Snowflake at $73B, or CrowdStrike at $103B.
They dominate headlines, but they don’t solve the same problem this company does: securing and automating compliance at the very core of financial data.
When news breaks again, there won’t be enough stock to go around.
That’s why investors who recognize the scarcity dynamic are paying attention now, before the crowd wakes up.
See the full story before the next contract hits.
*Examples that we provide of share price increases pertaining to a particular Issuer from one referenced date to another represent an arbitrarily chosen time period and are no indication whatsoever of future stock prices for that Issuer and are of no predictive value. Our stock profiles are intended to highlight certain companies for YOUR further investigation; they are NOT stock recommendations or constitute an offer or sale of the referenced securities.
Strategic Positioning
Descartes Systems Group (NASDAQ: DSGX) is the backbone of global logistics. Its cloud platform handles customs compliance, freight visibility, and routing for over 26,000 customers in 160+ countries.
Think of it as the “operating system” for moving goods across borders.
The business runs on sticky subscriptions with about 93% of revenue coming from recurring services, producing gross margins in the mid-70s and EBITDA margins around 45%.
That kind of profitability is rare in the mid-cap space.
If you have been burned by “growth at all costs” models, DSGX stands out as a company that’s already figured out how to be sustainably profitable.
Another strength is diversification. Descartes doesn’t rely on one vertical or geography.
Its acquisitions have pushed it deeper into e-commerce logistics, customs compliance, and transportation management.
That means revenue is spread across industries that don’t always move in sync. When one end market slows, another can pick up the slack. This diversification makes DSGX far more defensive than the average mid-cap software play.
Management’s playbook is simple but effective. Bolt-on acquisitions to broaden the toolkit.
The $112 million pickup of 3GTMS expanded its transportation management solutions, helping shippers and carriers optimize at a time when global supply chains are still messy.
Pair that with earlier buys like Sellercloud and OCR Services, and you start to see a platform effect, as customers can handle more of their logistics stack inside Descartes instead of juggling multiple vendors.
Action: Start a position near $100 if you want exposure to logistics tech with a defensive revenue base. Add above $110 on signs integration is going smoothly. |
Recent Momentum
Q1 results spooked: revenue came in at $168.7 million, a small miss versus the $170 million consensus, and EPS of $0.41 fell short by nearly 11%. Shares slid about 8%.
But under the hood, things weren’t all bad. Services revenue jumped 13.6% year over year. EBITDA margin actually improved to 45%.
And management announced a 7% headcount reduction, targeting $15 million in annualized savings.
That’s a painful headline, but it sets the stage for stronger operating leverage.
Cash flow dipped, operating cash fell to $53.6 million from $63.7 million a year ago, but that was due to one-off costs like the 3GTMS acquisition and bonus payments.
Importantly, Descartes still sits on nearly $176 million in cash and remains debt-free.
That gives them the flexibility to keep acquiring, even in a choppy rate environment where many peers are hamstrung.
Hedge funds seem to agree. Twenty-two funds currently hold positions, and analysts are split but see upside toward $120–$136.
The lack of euphoric consensus means there’s room for sentiment to swing higher on execution.
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The Setup You’re Actually Betting On
Buying DSGX here is a bet on three things:
Recurring revenue engine: With 90%+ subscriptions, cash keeps flowing even if trade volumes soften.
M&A momentum: Five acquisitions in the past year bolstered the platform across e-commerce, customs, and transportation. Integration is key, but each bolt-on makes the ecosystem stickier.
Macro catalysts: Trade disruptions, tariffs, and reshoring create headaches for companies, and opportunities for Descartes, which sells the compliance and routing solutions they need.
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Valuation Check
At ~$102, shares trade at about 60x trailing earnings. Steep, yes, but cash flow tells the better story.
Free cash flow yield sits in the mid-single digits even at this price, with room to move higher as cost cuts kick in.
A discounted cash flow model pegs fair value closer to $120–$130.
Compared to peers like Manhattan Associates, Descartes isn’t cheap, but with its recurring revenue and stronger diversification, the premium multiple holds water.
You can be willing to pay up here are essentially buying predictability, with margins north of 40%, a near debt-free balance sheet, and high retention rates that make downturns less painful.
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Sometimes a single deal tells the whole story.
This company recently secured a perpetual compliance contract worth $25 million annually. That’s more than the company’s entire market cap.
And that’s just one contract.
Layer on a $23 million (€20M) European banking modernization project and a growing US pipeline, and you begin to see why insiders and institutions already control most of the tiny float. Less than 9.7 million shares are actually available to trade.
That scarcity is rare. When demand collides with limited supply, the result can be explosive.
Meanwhile, Wall Street is still asleep.
The market values this company at just $21 million. Compare that to Palantir at $366B, Snowflake at $73B, and CrowdStrike at $103B. Those giants all trade at rich multiples because their revenue is recurring. This microcap has already proven the same model, but its valuation barely registers.
The disconnect cannot last. Every new contract magnifies the pressure on the float. Each deal makes it harder for the market to ignore.
Investors who spot recurring revenue this early know how powerful it can be.
See why this overlooked contract could be the spark before the crowd catches on.
*Examples that we provide of share price increases pertaining to a particular Issuer from one referenced date to another represent an arbitrarily chosen time period and are no indication whatsoever of future stock prices for that Issuer and are of no predictive value. Our stock profiles are intended to highlight certain companies for YOUR further investigation; they are NOT stock recommendations or constitute an offer or sale of the referenced securities.
Catalysts to Watch
M&A integration: Smooth rollout of 3GTMS, Sellercloud, and other recent deals.
Trade policy: New tariffs or reshoring momentum would drive demand for compliance tools.
Margin expansion: Cost cuts push EBITDA margins toward the high 40s.
Cash flow: A return to $60M+ operating cash flow per quarter.
Guidance: Any revenue or EBITDA raise at the next call would flip sentiment fast.
Risks
Let’s keep it real. Here’s what can go wrong:
Global trade slowdown – If volumes collapse, even sticky subs take a hit. A deep recession that crimps freight and customs filings could trim double-digit revenue growth to mid-single digits.
Integration missteps – Five deals in a year is ambitious. If cross-selling fails or systems don’t sync, it could drag on margins. The market has little patience for “digesting acquisitions” excuses.
Rich multiple – At 60x earnings, the market won’t forgive many misses. A second consecutive earnings miss could rerate the stock toward peer multiples in the 40s, implying 15–20% downside.
Rates pressure – Higher-for-longer rates weigh harder on mid-caps, especially if you rotate back into mega-cap tech.
Execution risk – The $15M cost savings need to show up in results. If layoffs don’t deliver leverage, it looks like wasted pain.
Sentiment risk – As a Canadian mid-cap, DSGX is often overlooked until momentum builds. That can cut both ways, as retail flows can accelerate rallies, but just as easily exaggerate drawdowns.
Action Plan
Here’s a clean way for you to approach it:
Starter buy: Around $100 to begin a core position.
Add on strength: Above $110 if revenue growth re-accelerates and margin expansion is evident.
Near-term target: $120–$125 on solid execution.
Stretch target: $135+ if M&A pays off and trade disruptions fuel demand.
Stop-loss: Trim below $92 if earnings weaken again and cash flow softens.
Final Take
This isn’t a flashy AI moonshot. It’s a quiet Canadian compounder with sticky revenues, high margins, and a proven M&A engine.
The latest pullback looks more like a gift than a red flag.
If you’re tired of chasing mega-cap tech and want mid-cap exposure with real staying power, Descartes fits the bill.
Build it on weakness, add on proof, and let the steady compounding do the heavy lifting.
That’s all for today. Thank you for reading. If you have any feedback, please reply to this email.
Best Regards,
— Adam Garcia
Elite Trade Club
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