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Cheapies With a Chance 2023
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A few times a year, we manually review every publicly traded company in Canada. The purpose is to uncover new ideas and hunt for companies that have slipped through the cracks.
The concept is simple. By following a simple formula, searching for value in the most overlooked part of the market, we can find market-beating opportunities. The simple criteria are:
- Growth - Quarterly revenue growth >25%
- Profitability or near profitability - Ideally, two consecutive quarters of positive net income
- Size - Under <$50M market cap and the smaller, the better. A tight share structure is also a bonus - Ideally, the best situations are <30M shares outstanding.
After we find companies that meet our revenue growth criteria, we then begin to remove companies that are not close to profitability, have too many shares outstanding, have too many red flags, or are simply too discovered.
We've had some unbelievable success with this formula, and boldly claim that even if you didn't read a single thing about these companies, you have a good chance of outperforming the market with a basket of these stocks.
Below we have the two cheapies with a chance lists from 2021 and the one list from 2022.
We'll let the results speak for themselves, see below: |
| | | | | In previous years we've uncovered some monster gems that have provided our subscribers life-changing returns.
As investors, we recognize that not every stock we own is going to be a winner; it’s part of investing. However, by sticking to a simple criterion we have routinely demonstrated we have a proven formula for finding companies that can create huge rewards for those investors.
It’s like putting a quarter into a slot machine that always spits out more cash over time. This is why we love microcaps and try to stick to our formula.
After reviewing all SEDAR filings, this year we had lots of high growth companies with a list of about 150 companies that we've reduced down to 10. And so today, we’re presenting the Top 10 Cheapies with a Chance companies on our watchlist.
Before we share this list, we wish to remind our subscribers that not all of these are Smallcap Discoveries Select Portfolio companies, but instead are part of our Select Watchlist, and we wanted to highlight the names that stuck out in our annual SEDAR review. Additionally, for disclosure purposes we've highlighted the names that we own shares of.
For each company, we’ll provide some key facts and a list of pros and cons. Thereafter, we’ll provide the bottom line on whether we are buying or passing and what we’d need to see to invest.
(Order according to market cap - smallest to largest)
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| Appulse Ticker: APL.V
Price: $0.24
Market cap: $3.4M
Shares outstanding: 14M
Y/Y Revenue growth: 5%
Q/Q Revenue growth: 51%
EV: $4.6M EV/E: 17x TTM Net income: $274K
P/E: 12x
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| | What it does: Through its subsidiaries, Centrifuges Unlimited Inc., and Rolyn Oilfield Services Inc., Appulse specializes in the sales, servicing and refurbishing of industrial centrifuge equipment, serving both domestic and international markets, and offers full service industrial machining. The Corporation continues to expand its product base and geographic markets, in addition to pursuing further representative arrangements and joint venture opportunities.
Notes:
- Profitable six of the last seven quarters
- Nuts and bolts type of business.
- Centrifuge customers are in the oil & gas sector, creates cyclicality.
- Low share count, and very illiquid.
- Consistently profitable dating back to 2013.
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| Total Telcom Ticker: TTZ.V
Price: $0.16 Market cap: $4.1M Shares outstanding: 25.9M Y/Y Revenue growth: 11%
Q/Q Revenue growth: 29% EV: $2.7M
EV/E: 7.8x TTM Net income: $353K P/E: 12x |
| | What it does: Total Telcom is a leading developer and provider of remote asset monitoring and tracking products and services throughout North America. Total Telcom specializes in the development of innovative wireless communications that provide low cost, high tech monitoring, tracking and remote control solutions for commercial, industrial and consumer applications. Total Telcom is uniquely positioned and qualified to deliver complete web to wireless solutions that enable companies and organizations to remotely monitor, track and control their fixed and mobile assets with a web browser from any Internet enabled PC.
Products and services are based on Total Telcom’s web to wireless technology and proprietary 2nd generation hardware & software marketed as TextAnywhere, ROM Controllers, ROMTraX, MotoTraX, TraX, DataTraX, WaterTraX, SiteTraX, CamTraX and AlarmTraX. These modules are wireless modems that utilize microcomputers integrated with sensors, GPS engines and various inputs and outputs (I/Os) and interfaced by the user through the Internet. ROM is an authorized airtime reseller and hardware developer for satellite, cellular and wireless IP Networks.
Notes:- Profitable twenty-four of the last twenty-five quarters
- Trades at book value with $1.45M cash.
- Perfect stock for a small retail investor.
- New product announced with expected $1M+ added annually to revenues.
- Limited capital markets expertise.
- Company is great at innovating new products, but hasn't executed on operating all business lines congruently.
- **We own shares
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| Network Media Group Ticker: NTE.V
Price: $0.06 Market cap: $5.55M Shares outstanding: 92.55M Y/Y Revenue growth: 163%
Q/Q Revenue growth: 804% EV: $6.2M
EV/E: N/A TTM Net loss: ($407K) P/E: N/A |
| | What it does: Network Media Group is the parent company of Network Entertainment Inc.
Network Entertainment is a creatively driven, boutique film, television, and digital content production company that creates, finances, and produces award-winning programming for television, digital platforms and movie audiences around the world.
The Network premium brand of content delivers world-class casts and features visually cinematic, richly crafted storytelling. The Company's productions are consistently embraced by both audiences and critics alike, garnering awards, record ratings and unparalleled media coverage for Network and its partners. Newly formed Network NFT Studios collaborates with IP owners, artists, and top talent to create, distribute, and monetize NFT campaigns and related initiatives in the digital universe (networknft.ca).
Notes:- Lumpy revenues, based on project delivery.
- High-quality products, with potentially mispriced library of intellectual property.
- Drop in backlog last quarter, with $7.5M total.
- Decent insider ownership.
- **We own shares
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| Current Water Technology ** Bonus
Ticker: WATR.V
Price: $0.035
Market cap: $7.4
Shares outstanding: 212M
Y/Y Revenue Growth: 84%
Q/Q Revenue growth: 505%
EV: $7.3M |
| | What it does:
Current Water Technologies is a “Technology Company” applying its patented and proprietary “Electrochemical Technologies” to the treatment of waste water, desalination water and drinking water contaminated by metals or nutrients, i.e., nitrate/ammonia associated with the mining, metal processing, chemical, agricultural, municipal and waste management sectors. Pumptronics Incorporated operates as a division of the Company and continue to function as an integrated pump station manufacturer specializing in custom design and automation.
Notes:
- Limited profitability, not proven, profitable last quarter.
- On track for record revenues.
- Broken share structure, will ultimately want to see it rolled back.
- Recent insider buying.
- Medium insider ownership.
- Working capital is quite low, potential dilution or debt.
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| Medicure Ticker: MPH.V
Price: $1.01 Market cap: $10.3M Shares outstanding: 10.2M Y/Y Revenue growth: 36%
Q/Q Revenue growth: 7% EV: $5.8M
EV/E: 1.4x TTM Net Income: $4M P/E: 2.5x |
| | What it does: Medicure is a pharmaceutical company focused on the development and commercialization of therapies for the U.S. cardiovascular market. The present focus of the Company is the marketing and distribution of AGGRASTAT® (tirofiban hydrochloride) injection and ZYPITAMAG® (pitavastatin) tablets in the United States, where they are sold through the Company's U.S. subsidiary, Medicure Pharma Inc. Medicure also operates Marley Drug, Inc. ("Marley Drug"), a pharmacy located in North Carolina that offers an Extended Supply drug program serving all 50 states, Washington D.C. and Puerto Rico. Marley Drug® is committed to improving the health status of its patients and the communities they serve while reducing overall health care costs for employers and other health care consumers.
Notes:- Trades well below book value ($11M is intagible assets).
- Net income impacted favorably by reclassification for $1M skewing financials metrics ($1M net income).
- Acquisition (Marley Drug) skewed the revenue growth as non-organic.
Acquisition was paid for in all cash.
- Ex-out R&D spending, and core business generates decent cashflow.
- Insider buying from CEO Albert Friesen.
- Strong insider ownership.
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| Biorem Ticker: BRM.V
Price: $0.88 Market cap: $13.6M Shares outstanding: 15M Y/Y Revenue growth: 33%
Q/Q Revenue growth: 60% EV: $14.4M
EV/E: 6.1x TTM Net income: $2.39M P/E: 5.7x |
| | What it does: BIOREM is a leading clean technology company that designs, manufactures and distributes a comprehensive line of high-efficiency air emissions control systems used to eliminate odors, volatile organic compounds (VOCs), and hazardous air pollutants (HAPs). With sales and manufacturing offices across the continent, a dedicated research facility, a worldwide sales representative network and more than 1,800 installed systems worldwide, BIOREM offers state-of-the-art technology-based products and peace of mind for municipalities, industrial companies and their surrounding communities.
Notes:- Lumpy business, revenues fluctuate quarter to quarter based on project deliveries.
- Management has done a good job at cleaning up the capital structure - Acquired 23M shares from previous insiders at $0.52.
- Record backlog ($44.5M), heading into seasonally strong Q4.
- Low inside ownership.
- Profitable the last two quarters.
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| Crescita Therapeutics Ticker: CTX.TO
Price: $0.69 Market cap: $14M Shares outstanding: 20.4M Y/Y Revenue growth: 109% Q/Q Revenue growth: 102% EV: $3.3M
EV/E: 5.3x TTM Net income: $629K TTM P/E: 22.4x |
| | What it does: Crescita Therapeutics is a pharmaceutical company focused on the development and commercialization of innovative, non-prescription skincare products. The company was founded in 2004 and is headquartered in Montreal, Quebec, Canada. Crescita Therapeutics has a diverse portfolio of products, including over-the-counter (OTC) topical treatments for a variety of skin conditions, such as acne, dermatitis, and rosacea. The company also has prescription-based skincare products for the treatment of plaque psoriasis, a chronic skin condition.
Crescita is a growth-oriented, innovation-driven Canadian commercial dermatology company with in-house R&D and manufacturing capabilities. Crescita offers a portfolio of high-quality, science-based non-prescription skincare products and early-to-commercial-stage prescription products.
In addition, Crescita owns multiple proprietary transdermal delivery platforms that support the development of patented formulations that facilitate the delivery of active ingredients into or through the skin.
Notes:- Historically lumpy revenues and profitability due to royalties from Pliaglis licenses.
- Was severely impacted by COVID-19, therefore growth metrics are favorably high.
- High cash position of $10.8M and no debt.
- Based on the very low enterprise value, the sum of all parts should be much higher than the assigned $3M the market has priced it at.
- New products expected to launch in 2023 - Dermal fillers.
- Lower insider ownership 10%.
- High management salaries.
- Normal course issuer bid in place.
- Spinout company from recently acquired Nuvo Pharmaceuticals, and management has done a decent job at growing the business out of it's debt position with no dilution.
- Will not show up on as many screeners, due to higher P/E market cap, but on EV basis, quite cheap - which is the opportunity.
- **We own shares
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| CanadaBis Capital Ticker: CANB.V
Price: $0.105 Market cap: $15M Shares outstanding: 137M Y/Y Revenue Growth: 144% Q/Q Revenue growth: 220%
EV: $20M
EV/E: 13x TTM Net income: $1.57M P/E: 9.6x |
| | What it does: CanadaBis Capital Inc., is a vertically integrated Canadian cannabis company focused on achieving large-scale growth, from cultivation to retail, in the fast-emerging global cannabis market. By targeting organic growth opportunities alongside the right-fit partners, we remain focused on finding and capitalizing on chances to grow, diversify and continue to lead our industry.
Our integrated subsidiaries:
- Stigma Pharmaceuticals Inc. – 100% held
- 1998643 Alberta Ltd. (operating as "Stigma Grow") - 100% held;
- www.stigmagrow.ca
- Full Spectrum Labs Ltd. (operating as "Stigma Roots") - 100% held
- 2103157 Alberta Ltd. (operating as "INDICAtive Collection") -100% held;
- www.indicativecollection.ca
- Goldstream Cannabis Inc. - 95% held
Notes:- Profitable for the last four straight quarters.
- Share structure is on the high-side, and not favorable.
- Good insider ownership, including CEO
- Strong insider buying lately.
- Long-term debt $6M+, in breach of covenant.
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| Titan Logix Ticker: TLA.V
Price: $0.54 Market cap: $15.4M Shares outstanding: 28.5M Y/Y Revenue growth: 22%
Q/Q Revenue growth: 52% EV: $2.6M
EV/E: 2.3x TTM Net income: $1.12M P/E: 13.7x Website: https://www.titanlogix.com/ |
| | What it does: For over 25 years, and founded in 1979, Titan Logix Corp. has designed and manufactured mobile liquid measurement solutions to help businesses reduce risk and maximize efficiencies in bulk liquids transportation. Titan's TD Series of tank level monitors are a market leader in mobile fluid measurement, and are known for their high level of accuracy, rugged design, and solid-state reliability. Our solutions are designed for hazardous and non-hazardous applications, and we serve customers in a wide range of applications including petroleum, environmental solutions, chemical, and agriculture.
Notes: - Profitable the last two quarters.
- Solid cash position $9.2M - with no debt.
- Trades at just below book value.
- Low insider ownership - and a large ownership by Jerry Zucker trust (36.8%)
- Revenues are relatively flat over a 5-year period.
- Cyclical business that's tied to oil and gas industry.
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| Inventronics Ticker: IVX.V
Price: $3.50 Market cap: $17M Shares outstanding: 4.84M Y/Y Revenue growth: 84%
Q/Q Revenue growth: 109% EV: $17.4M
EV/E: 7.9x TTM Net income: $2.2M P/E: 7.7x |
| | What it does: Inventronics Limited designs and manufactures enclosures and other products for an array of customers in the telecommunications, cable, power distribution, energy, and other industries in North America. The Corporation owns its ISO 9001-registered production facility in Brandon, Manitoba.
Notes:
- Profitable eight of the last nine quarters.
- Nuts and bolts business, isn't likely to get a super high multiple.
- Pays one-time dividends, last dividend of $0.35 per share.
- Perfect type of stock for a small retail investor
- It's a "nuts and bolts" type of business, meaning, it's not as scalable as a software company and expenses are likely to increase as the top line continues to grow. We don't expect these type of nuts and bolts business to attract extremely high multiples.
- Very low number of shares outstanding, and extremely illiquid - shares can be quite volatile.
- **We own shares
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| IBEX Technologies
Ticker: IBT.V
Price: $0.76
Market cap: $19M
Shares outstanding: 24.7M
Q/Q Revenue growth: 49% Q/Q Revenue growth: 52%
EV: $11M
EV/E: 6.7x
TTM Net income: $1.67M
P/E: 11x |
| | What it does: IBEX manufactures and markets enzymes for biomedical use through its wholly owned subsidiary IBEX Pharmaceuticals Inc. (Montréal, QC). IBEX Pharmaceuticals also manufactures and markets a series of arthritis assays, which are widely used in osteoarthritis research.
Notes:
- Good amount of cash on the balance sheet ($8.15M).
- May have some hidden IP.
- Management likes to sand-bag or under-promise in financial disclosure.
- High insider ownership would make for easy take private transaction by management.
- May have some strategic value to an acquirer.
- Normal course issuer bid in place.
- **We own shares
Wrap-up
So, there you have it, ten (10) and one (1) bonus undiscovered companies that are right around our criteria we think are compelling enough to share. We can’t promise all – or even some of these – will be winners. But our experience shows that owning tiny, cash flowing micro-caps is one of the fastest routes to big profits.
To your wealth,
Paul and Trevor
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