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Cheapies With a Chance 2024
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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 2023 and all of our cheapies with a chance, or, takeover lists can be found by clicking here.
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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| ZTest Electronics Ticker: ZTE.V
Price: $0.095
Market cap: $2.96 million
Shares outstanding: 31 million
Y/Y Revenue growth: 45.5%
Q/Q Revenue growth: 116%
EV: $2.5 million TTM Net income: $1.34 million
P/E: 2x
P/E Annualized: 1.34x Website: https://ztest.com/ |
| | | What it does:
ZTEST is a technology company listed on the Canadian Securities Exchange (CSE) under the symbol ZTE. The company is focused on monetizing the online commerce market through Conversance’s Chronicle platform, by providing a high-speed AI driven token based platform that will be capable of hosting a wide array of applications on a world wide basis. ZTEST is also looking to create synergies with Permatech Electronics, a wholly owned subsidiary of ZTEST. Permatech is an ISO 9002 certified Electronic Manufacturing Services (EMS) provider founded in 1982. Permatech’s offerings include Materials Management, Printed Circuit Board (PCB) Assembly, Testing and Design services, which are available to support both Twenty49 and Conversance, as needed. Permatech operates from a 20,000 square foot facility in North York, Ontario, Canada. The company serves customers in the Medical, Power, Computer, Telecommunication, Wireless, Industrial and Consumer Electronics markets requiring high quality, quick-turn, small and medium size production runs. Pros:- Very cheap
- Strong revenue and earnings growth
- Low shares count
- Decent balance sheet for its size
- Extremely low PEG ratio
- <10 EV/annualized earnings
Cons:- CSE listing
- Recent insider sales
- Shares for debt transaction - potentially poor governance
- Investments in unprofitable technology business (Conversance) - Value undefined
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| Spectra Inc Ticker: SSA.V
Price: $0.24 Market cap: $3.5 million Shares outstanding: 14.6 million Y/Y Revenue growth: 43%
Q/Q Revenue growth: 13% EV: $2.35 million
TTM Net income: $71,320
P/E: 49x P/E Annualized: 16x Website: https://www.spectrainc.ca/ |
| | What it does:
What it does: Safety enhancement products for the transportation industry
Spectra Products Inc., is a vertically integrated manufacturer and supplier of innovative products and services to the commercial transportation industry and the professional truck driver.
Spectra Products Inc. product line is aimed at improving fleet safety, reducing maintenance costs and improving operational productivity within the commercial trucking, commercial busing, and related industries. Spectra Products Inc. is a publicly listed company trading on the TSX Venture Exchange (TSXV: SSA).
Pros:
- Low share count
- Normal Course Issuer Bid
Cons:
- Small insider ownership
- One man show
- Less than 25% revenue growth
- Questionable capital allocation
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| Current Water Technology
Ticker: WATR.V
Price: $0.03
Market cap: $6.37 million
Shares outstanding: 212M
Y/Y Revenue Growth: 33%
Q/Q Revenue growth: 60%
EV: $6 million TTM Net income: $6,086
P/E: 1057x |
| | 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.
Pros: - Strong revenue growth
- Low EV/annualized earnings
- Low PEG ratio
- <10 EV/annualized earnings
Cons: - High share count
- Lumpy business
- Inconsistent historical profitability
- Limited working capital - potential dilution or debt.
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| The Good Shroom Co Ticker: MUSH.V
Price: $0.155 Market cap: $7.8 million Shares outstanding: 50.4 million Y/Y Revenue growth: 107%
Q/Q Revenue growth: 84% EV: $7.72 million TTM Net Loss: ($170,124) P/E: N/A P/E Annualized: 22x Website: https://www.thegoodshroom.co/ |
| | What it does: The Good Shroom Co. operates a portfolio of brands which include traditional cannabis and beverage products. It exists to promote the use of functional ingredients such as probiotics and functional mushrooms in consumer products. Its line of Teonan beverages are first a quality and tasty beverage but also contain a dose of functional mushrooms and probiotics.
We all have a daily routine; be it coffee, tea or another. Why not make that routine functional for body and mind by adding probiotics and mushrooms to it? Up to now no company has been able to maintain a familiar taste at a fair price while making them truly functional. The Good Shroom Co has bridged that gap and intends on making its brands household names for making it a part of its customers daily routine.
Pros:
- Very high revenue growth
- Low PEG ratio
- Debt free and hitting record revenue figures
Cons: - Just turned profitable
- Twelve trailing month net losses
- Potential dilution or financing risk
- >15X EV/annualized earnings
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| Canaf Inc Ticker: CAF.V
Price: $0.23 Market cap: $10.9 million Shares outstanding: 47 million Y/Y Revenue growth: 45%
Q/Q Revenue growth: 42% EV: $5.6 million TTM Net income: $2.93 million P/E: 3.77x P/E Annualized: 2.4x Website: https://www.canafinvestments.com/ |
| | What it does:
Canaf owns 70% of a well-established anthracite beneficiation company, Southern Coal (Pty) Ltd., that supplies calcined anthracite to major sinter facilities in South Africa.
Canaf owns 100% of Canaf Estate Holdings (Pty) Ltd., a South African company focused on property investments within the suburbs of Johannesburg.
Canaf is focused on growing long-term sustainable shareholder wealth by investing generated profits into new and related (carbon) sectors within southern Africa.
Pros: - Very cheap
- Consistently profitable
- Low share count
- Very low PEG ratio
- <10 EV/annualized earnings
Cons: - South Africa - Geopolitical risk
- Poor IR communication
- commodity focused business
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| Destiny Media Ticker: DSY.V
Price: $1.25 Market cap: $13.25 million Shares outstanding: 10.6 million Y/Y Revenue growth: 6.5% Q/Q Revenue growth: 13% EV: $10.6 million
TTM Net income: $326,348
P/E: 38x P/E Annualized: 12.5x Website: https://investors.dsny.com/ |
| | | What it does:
Destiny Media Technologies, Inc. (TSX.V: DSY; OTCQX: DSNY) owns and operates the Play MPE® platform. Play MPE® is the world’s leading music promotion platform – connecting
record labels and artists to influential music curators around the world. The Play MPE platform increases the likelihood that music becomes popular to directly increase record label and artists’ revenue. Play MPE®’s customers include the world’s largest record labels; Universal Music, Warner Music, Sony Entertainment, BMG, Big Machine, Beggars, [PIAS], Curb I Word, Broken Bow, eOne Entertainment, Epitaph and many more.
Pros: - Good balance sheet
- Normal Course Issuer Bid
- Low share count
Cons: - Less than 25% revenue growth
- Long history with microcap investors - story is tired
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| Reklaim Ticker: MYID.V
Price: $0.13 Market cap: $15 million Shares outstanding: 114 miilion Y/Y Revenue Growth: 63% Q/Q Revenue growth: 52%
EV: $14.9 million
TTM Net loss of ($33,036)
P/E: N/A P/E Annualized: 7x Website: https://www.reklaimyours.com/ |
| | | What it does:
Offering compliant, zero-party data to Fortune 500 brands, platforms, and data companies, Reklaim allows consumers to visit the application, confirm their identity, and unveil data collected and sold for years without the consumer's explicit consent. Reklaim enables consumers to take back control of this data by setting up a Reklaim account through which, should they choose to, they can be compensated for their data.
Pros:
- Strong revenue growth
- Low PEG ratio
- <10 EV/annualized earnings
Cons: - High share count
- Weak balance sheet
- Twelve Trailing Month net loss
- High dilution / financing risk
- Shares for debt transactions
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| Telescope Innovations Ticker: TELI.C
Price: $0.35 Market cap: $18.8 million Shares outstanding: 53.6 million Y/Y Revenue growth: 245% Q/Q Revenue growth: 194% EV: $21.5 million
TTM Net loss: ($232,859) P/E: N/A
P/E Annualized: 21.8x Website: https://telescopeinnovations.com/ |
| | What it does:
Telescope is a chemical technology company developing scalable manufacturing processes and tools for the pharmaceutical and chemical industry. The Company builds and deploys new enabling technologies including flexible robotic platforms and artificial intelligence software that improves experimental throughput, efficiency, and data quality. Our aim is to bring modern chemical technology solutions to meet the most serious challenges in health and sustainability.
Pros: - Very high revenue growth
- Low PEG ratio
- New CEO and partnership with Mettler Toledo
Cons: - Lumpy growth
- Twelve Trailing Month net loss
- Likely dilution (financing) risk
- >15X EV/annualized earnings
- Multiple business segments, company direction still undefined
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| Wrap-up
So, there you have it, eight (8) 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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