Welcome to ‘Stock Teasers’, where we aim to provide investment research on a wide range of topics. In this edition, Cross-Border Stocks, we spotlight one Canadian stock and one US stock, regardless of sector or size. Let’s dive in!

Canadian Stock: Propel Holdings (PRL)

Propel Holdings (PRL) is a fintech company committed to credit inclusion and helping underserved consumers by providing fair, fast, and transparent access to credit. It operates through its two brands: MoneyKey and CreditFresh. It has an online lending platform that facilitates access to credit products, such as installment loans and lines of credit to North American consumers. It has an AI-driven, and agile tech infrastructure.

In terms of its financials, it pays a healthy dividend of 2.9%, analysts expect 30% and 71% sales and earnings growth next year, respectively. It has demonstrated a healthy net profit margin of 9% and a 28% ROE. It trades at a reasonable valuation of 8.8X forward earnings and 5.8X forward EV/EBITDA.

We believe that PRL can benefit from declining rates, and its AI-powered tech goes beyond traditional credit scores and takes a holistic approach at each consumer. Looking at its limited history of earnings and financials, we can see that its valuation has mostly been contracting since its IPO (blue line), it has recently beat earnings estimates by a nice margin, and its profits continue to rise. 

US Stock: Arista Networks (ANET)

Arista Networks (ANET) is a leading provider of networking solutions, specializing in data-driven, client-to-cloud networking for large data center, campus and routing environments. Its platforms deliver availability, agility, automation, analytics, and security through an advanced network operating stack. Its main platform, Extensive Operation System (EOS) is a cornerstone of its product offering, enabling a single image across all devices and distinguishing the company in a competitive landscape.

In its recent earnings results, its modest 1Q sales outlook exceeds consensus and affirmation of its low-teens sales growth outlook might be conservative. The cloud sales reflect more the timing of AI deals vs. a read on underlying demand for its gear. Arista and the industry are probably still in the early innings of cloud AI adoption, and the company is making strong progress in AI deals, winning four of five cloud-AI ethernet deals in Q4. ANET’s ability to deliver stronger growth may not materialize until 2H and might be dependent on when gear powered by Broadcom’s Jericho 3 AI chipset become available. This could lead to an increase of its 2025 $750M back-end AI networking guidance and fuel stronger growth.

Looking at its financials, we see a healthy long-term contraction in its valuation (forward P/E multiple) over the past 10 years, and consistency in beating earnings estimates. In fact, it has not missed an earnings estimate in the past 10 years. There is some cyclicality to its profits, but largely it has seen expansion in earnings, and margins continue to grow.

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