Is Thinkific Labs (TSX:THNC) a Buy at Its New Valuation with Aggressive Share Repurchases?

Thinkific Labs (TSX:THNC) has emerged as a focal point for investors seeking undervalued opportunities in the edtech sector. The company's recent share repurchase program, coupled with its improving margin profile and low debt, has sparked debates about its re-rating potential. This analysis evaluates whether the stock's current valuation, supported by capital return initiatives and margin stability, justifies a "buy" recommendation.

Share Repurchases: A Strategic Move to Unlock Value

Thinkific Labs renewed its Normal Course Issuer Bid (NCIB) in November 2025, authorizing the repurchase of up to 5% of its outstanding shares (3,395,023 shares) through 2026. This follows a 2024–2025 program where the company spent CAD$3.2 million to buy back 1,262,116 shares. The renewed program includes an automatic share purchase plan to circumvent trading blackouts, signaling a disciplined approach to capital allocation.

The company's financial position supports such aggressive buybacks. As of Q4 2024, Thinkific held $49.5 million in cash and cash equivalents, with total debt at $1.54 million and a debt-to-equity ratio of 3.60%. These metrics suggest ample liquidity to fund repurchases without compromising operational flexibility. By reducing the share count, Thinkific aims to boost earnings per share (EPS) and signal confidence in its intrinsic value, a strategy that often resonates with value investors.

Valuation Metrics: Undervalued but with Caveats

Thinkific's valuation appears compelling relative to peers. Its price-to-sales (P/S) ratio of 1.4x is significantly below the industry average of 5.2x, while its enterprise value (EV) of $48.14 million as of January 2026 reflects a discount to historical averages. However, the company's EV/EBITDA ratio is negative (-36.9x) due to its trailing twelve months (ttm) operating margin of -1.23%. This highlights the tension between revenue growth and profitability.

Despite the negative operating margin, Thinkific's gross margin of 73.8% remains robust, indicating strong control over direct costs. Adjusted EBITDA has shown improvement, rising to $0.9 million in Q1 2025 (5% of revenue) from $0.2 million in the same period in 2024. For the full year 2024, adjusted EBITDA turned positive at $2.9 million, reversing a $3.0 million loss in 2023. These trends suggest that while profitability is nascent, the company is making progress.

Analyst Expectations: A Mixed Outlook

Analysts remain divided on Thinkific's margin trajectory. While some, like Martin Toner of ATB Capital Markets, have trimmed gross margin forecasts due to a 190 basis point miss in Q1 2025, others highlight the company's strategic pivot toward higher-gross merchandise value (GMV) customers and AI-driven innovation as long-term catalysts according to market analysis.

Earnings forecasts, however, are bleak. EPS is projected to decline at an annualized rate of 109.7% over the next three years, driven by cautious revenue growth assumptions (5.9% annually) according to financial projections. This contrasts with Thinkific's guidance for adjusted EBITDA to rise to $4.9 million on $81.2 million in revenue by 2026. The disconnect between top-line and bottom-line expectations underscores the risks of relying on margin expansion in a competitive market.

Re-Rating Potential: Balancing Risks and Rewards

The key question is whether Thinkific's share repurchases and margin improvements can drive a re-rating. The company's stock currently trades at a 20% discount to the 12-month price target of $2.18, while some analysts estimate a fair value of $3.05 per share according to market reports. This implies a potential upside of 40% from current levels, assuming the company meets its EBITDA guidance and executes its strategic initiatives.

However, the path to re-rating is not without hurdles. The negative EV/EBITDA ratio of -36.9x and weak operating margin of -1.23% according to financial results highlight the fragility of the company's earnings model. A broader economic slowdown or execution missteps could derail progress. That said, the combination of undervaluation, disciplined capital return, and improving EBITDA trends creates a compelling risk-reward profile for patient investors.

Conclusion: A Buy for Value-Oriented Investors

Thinkific Labs presents an intriguing case for investors who can tolerate near-term volatility. The aggressive share repurchase program, supported by strong liquidity, is a clear signal of management's confidence in the stock's intrinsic value. While the company's operating margin remains negative and analyst forecasts are mixed, the improving EBITDA trajectory and undervalued P/S ratio suggest potential for a re-rating. For those who believe in the company's strategic shift toward higher-margin offerings and its ability to scale efficiently, THNC could be a compelling buy at current levels.