This article was originally published on August 29, 2023. The ad is circulating heavily again from the Motley Fool, so we’re re-posting it with some updates… the stock being teased is still close to where it was back in August.
The Motley Fool has pitched their flagship Stock Advisor newsletter with artificial intelligence (A.I.) teaser picks before, though those have almost always been thinly veiled pitches for the titans of AI — NVIDIA (NVDA), Alphabet (GOOG) and Meta (META), specifically, have been the focus of their “AI Disruption Playbook” for a long time.

But now the Canadian cousins are getting into the game, with something a bit smaller… here’s how the latest email pitch from Motley Fool Canada came in over the weekend, advertising their own version of Stock Advisor (C$99/first year, renews at C$199):

“This morning’s major AI stock alert….

“Insiders believe 2023 could be a “critical inflection point” for artificial intelligence…

“And this tidal wave of cash could be unleashed much sooner than you might think.

“After all, when ChatGPT was released last November, it reached a million users… in 5 DAYS!”

So what’s the “best way to get your cut” of this huge opportunity? They say, naturally, that it’s a “tiny stock” that you have to sign up to learn about… but they also drop some clues, so let’s see if we can get a name for you:

“I think you’ll want to hear about the tiny TSX-traded stock that the Motley Fool Canada team just published a detailed BUY report on.

“Because this AI-powered company is…

“Led by a savvy founder who personally owns over $54 million worth of shares

“Growing rapidly with revenue up 14x in the past 6 years

“Profitable and sitting on a war chest of cash with zero debt”

And they say that this “under-the-radar Canadian stock” is “650X smaller than NVIDIA” — which is a nonsensical claim, but presumably means that it’s about 1/650th the size of NVIDIA. That would put it in the $1-2 billion market cap range, most likely.

The final push from them:

“5 years from now, this tiny Canadian company could be the one A.I. stock you wished you had in your portfolio.”

So what’s the stock, and what’s the story? This is, sez Le Thinkolateur, the Canadian e-learning leader Docebo (DCBO in both Toronto and NY). They offer a platform for learning management for enterprises, basically a modern and cloud-based staff development and training system. Here’s how the company describes itself on its “why invest” page:

“Since our founding in 2005, we have seen significant changes in the way that enterprises approach learning. Corporate e-learning solutions were once considered a “nice-to-have”. However, in recent years, our customers have begun to recognize that corporate e-learning solutions are a core part of their strategy for success. We believe that corporate training and learning will continue to be an important challenge for businesses and we are committed to working with our customers to meet this challenge.

“Docebo initially launched as an open-source model that was installed directly on customer servers. In 2012, we made the transition to a cloud-based SaaS platform model, which is currently being offered to our customers. Our platform and related products are constantly evolving as we continue to embrace new technologies. For example, we were one of the first organizations to introduce artificial intelligence into the e-learning market by integrating artificial intelligence into our products. We believe that artificial intelligence is transforming corporate e-learning into a competitive advantage for enterprises since it allows enterprises to get data-driven insights so that they can enhance a learner’s experience and improve their workforces faster and more effectively. At Docebo, we have never stopped embracing new technologies as we seek to redefine the way that modern workforces learn.”

And it may indeed be that Motley Fool Canada has published a new report about this stock, or is somehow changing their thinking about it, and maybe it was even a new recommendation from this specific Stock Advisor Canada newsletter back in August, but this has also been one of the more enthusiastically covered stocks by the Canadian Fools over the past few years, and, judging by their past teasers and disclosures, it has been an official recommendation of at least one Fool newsletter since the Spring of 2021 (it was also around C$60 back then, though the stock rose later in 2021 and fell in 2022 like most of its tech stock compatriots).

So what’s the current situation? Docebo is indeed profitable, with a bit of a “war chest” and no debt, and they have had very good growth since 2016 (almost exactly 14x growth, in case you’re double-checking those clues). They’re also primarily bringing in recurring revenue — their annualized recurring revenue now stands at US$182 million (was $173 million in August), with growth recently at about 25%. Their net dollar retention rate in 2022 was 109%, which means that they kept 109% of their spending from existing customers — so customers are doing more upgrading of their Docebo installations than they are cutting back. They say their contracts have consistently gotten larger, and that most of their sales are of multi-year contracts, so there should be some stability to the business.

It’s barely profitable, to be fair — they haven’t burned much cash in building out the business, they have strong gross margins, and they have posted adjusted profits and an improving adjusted EBITDA margin for the past two years… including, they say, a “free cash flow margin” of 18% last quarter (16% last quarter), though it looks like a lot of that came from adjustments to working capital and stock-based compensation, along with some adjustments for their foreign exchange losses (presumably from fluctuation of the Canadian dollar versus the US$, since they earn most of their money in the US). All these numbers are from their latest investor presentation, on November 9, if you’d like to get a sense of how they’re selling themselves right now.

I can’t say that I have any great insight into Docebo or how it compares to other learning management/training platforms for (mostly) corporate education and development programs, but they have been showing good growth and they are at that attractive level where they’re just about to be consistently profitable, and that’s where the sometimes explosive-looking earnings growth often shows up in the numbers, which tends to attract investors.

And they are genuinely using AI to build their training programs and help companies design effective learning systems for employees… though, again, I have no sense, qualitatively, of how effective that AI usage might be, or how much it will add to their bottom line over time. It’s obviously a wild stretch to put “could be the next NVIDIA” in their email subject lines for this teaser ad, they certainly don’t have any kind of huge embedded leadership in AI hardware or software right now, but they could benefit from better AI that leads to better learning management systems, and they claim to be an early adopter in the space.

Where will the stock go? Much will depend on how enthused the market is about SaaS companies with fairly steady growth — investors lusted after such firms back in 2021 and routinely paid 20-30X ARR for them during the boom, and the shine has come off to some degree, so the valuations still seem to be resetting.

Right now, Docebo says they have US$182 million in ARR, so at a $1.4 billion market cap they’re valued at about 8X ARR, and just under 9X trailing revenue. That sounds reasonably attractive for a small company that’s emerging into profitability and still growing quite rapidly. Analysts now believe they’ll be able to report about 83 cents (US$) in adjusted earnings next year (up from a 72-cent estimate six months ago), and investors are often willing to overlook stock-based compensation, particularly for smaller growth companies, so that would mean, at US$44, they’re currently trading at about 53X forward earnings, down from 60X back in August. With the expected near-term growth in earnings of about 50% per year, they could grow into that very quickly if the business continues to perform well — it’s a rich valuation, but they have also blown away the analyst earnings estimates for several quarters in a row, including a nice beat and raise back in August that helped lift the stock by about 30% (boosted by an announced deal to use Google Cloud’s Generative AI capabilities including a “Generative AI Learning Technology Hackathon” that probably boosted investor interest a bit), and a solid beat (with a much smaller “raise” for guidance) back in November… so it’s clearly a speculative idea, but not, to my eyes, a ridiculous one.

And if you were on the fence back in August and didn’t bite on the Fool’s recommendation… well, you didn’t miss much. It was around $43 then, it’s at about $44 today, and the valuation has gotten a little cheaper as expectations for 2024 earnings have bumped up a little bit.

It’s not my money on the line, though, it’s yours — so you get to make the call. Think 25% revenue growth and some emerging earnings growth that could be in the 50% range is worth a buy? See great things for learning management platforms in general, or for using AI for training and teaching in the future? Have any reason to like or loathe Docebo specifically? Please let us know with a comment below.

P.S. More AI? If you’re interested in the Motley Fool’s “A.I. Disruption Playbook” that has also been making the rounds, I covered that one back in November here, the ad is still circulating and unchanged… and the Fool has some other AI-focused teaser pitches rolling these days as well, including the “AI Inflection Point” about some “Rocket Fuel” AI Microcap stocks which I wrote about here, with a few new stocks to consider, and a similar “Microcap AI Sleeper Stocks” pitch which I covered a couple months ago, with slightly different stocks named. Docebo played at least a supporting role in most of those “small cap AI” pitches from Motley Fool Canada, so it seems to pretty consistently be their favorite teaser stock for AI mania (and was pitched by them pretty regularly before the AI craze really took off last year).

Disclosure: Of the companies mentioned above, I own shares of Google parent Alphabet and NVIDIA. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.