Tuesday, Lake Street Capital Markets began coverage on Research Solutions Inc. (NASDAQ:RSSS) stock, assigning a Buy rating and setting a price target of $5.00. The firm recognized Research Solutions as a scientific research software and services platform that has successfully transitioned to a Software as a Service (SaaS) model, which is expected to drive growth and increase profit margins.
According to Lake Street Capital Markets, Research Solutions appears undervalued as its shares are currently trading at a discount compared to similar companies. This assessment is based on the belief that the market has not yet fully appreciated the company's shift from its legacy business model to a more modern SaaS-based approach.
The analyst pointed to the company's potential for a significant increase in recurring revenue, which is anticipated to account for half of Research Solutions' revenue mix. The expansion of this stable revenue stream is a key factor in the firm's positive outlook for the company's financial performance.
Lake Street Capital Markets anticipates that as Research Solutions continues to grow its recurring revenue, the current undervaluation of its shares will be recognized by the market, leading to a narrowing of the valuation gap with its competitors.
In summary, Lake Street Capital Markets' initiation of coverage on Research Solutions with a Buy rating and a $5.00 price target reflects a confidence in the company's strategic shift to a SaaS model and its prospects for revenue growth and margin expansion. The firm expects that the market will gradually acknowledge the transformation and adjust the company's valuation accordingly.
InvestingPro Insights
As Research Solutions Inc. (RSSS) pivots to a SaaS model, real-time data from InvestingPro underscores some key financial metrics that can provide further context to Lake Street Capital Markets' analysis. The company's market capitalization stands at $89.82 million, reflecting its position in the market. Despite not having turned a profit over the last twelve months, analysts are optimistic, predicting profitability this year, an expectation that is mirrored in the company's revenue growth of 17.15% over the same period. The price uptick of 28.21% over the last six months indicates investor confidence, which could be related to the anticipated growth in recurring revenue streams.
InvestingPro Tips suggest that while Research Solutions is trading at a high Price/Book multiple of 6.43, which is often a sign of market optimism about a company's future prospects, it is important to note that short-term obligations currently exceed liquid assets. This may warrant closer attention to the company's liquidity management as it scales its SaaS operations. Additionally, Research Solutions does not pay a dividend, which is common for companies focused on growth and reinvestment.
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