| | Smallcap Discoveries: Cheapies With a Chance |
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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 - 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.
Last year, we only released five (5) companies which are listed below with their returns. - Spectra Products (SSA-TSX.V) Price $0.05 / Today $0.05 / Return 0%
- FP Newspapers (FP-TSX.V) Price $0.38 / Today $0.59 / Return 55%
- Inventronics (IVX-TSX.V) Price $0.21 / Today $0.325 / Return 55%
- NexgenRx (NXG-TSX.V) Price $0.20 / Today $0.26 / Return 30%
- Aurora Solar Technologies (ACU-TSX.V) Price - 0.125 / Today / $0.385 / Return 208%
In previous years we've uncovered some monster gems such as Sangoma Technologies (STC-TSX.V) that have provided some of our subscribers life altering returns.
In 2016, we highlighted Sangoma Technologies and at that time it was $0.295. Today, Sangoma is trading at all time highs of $3.92, or a 1,200% gain.
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, we compiled an original list of around 50 companies that we’ve whittled down to 12. And so today, we’re presenting the Top 12 "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.
For each company, we’ll provide some key facts and a list of pros and cons. Thereafter, we’ll provide the bottom line on if we are buying or passing and what we’d need to see to invest. There’s no order to the stocks, other than we own them or are following closely.
(No defined order)
Aequus Pharmaceuticals. Ticker: AQS.V Price: $0.14 Market cap: $15.67M Shares outstanding: 111,916,540 Revenue growth: 66.8% Current assets - Total liabilities: $300K EV: $15.37M P/E: N/A |
| | What it does: Aequus is a growing specialty pharmaceutical company focused on developing and commercializing high-quality, differentiated products. Aequus has grown its sales and marketing efforts to include several commercial products in ophthalmology and transplant. Aequus plans to build on its Canadian commercial platform through the launch of additional products that are either created internally or brought in through an acquisition or licence, remaining focused on highly specialized therapeutic areas.
Notes:
- Doug Janzen is CEO – He was chairman of Abcellera (ABCL-Q). Reportedly owns 2 million shares of ABCL thru Northview Ventures
- Strong insider buying by Doug Janzen - Click here
- We own shares
Appulse Corp. Ticker: APL.V Price: $0.36 Market cap: $5.0M Shares outstanding:13,873,150 Revenue growth: 43.8% Current asset - Total liabilities: $3.2M TTM Profit: $1.25M TTM P/E: 2.56x |
| | 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, primarily featuring food and beverage and environmental applications, in addition to pursuing further representative and joint venture opportunities.
Notes: - Small insider selling - Click here
- Very cheap on most standard valuation metrics (P/E, EV/V etc.)
- Quite illiquid
- At minimum 8x consecutive quarters of profitability
Armada Data
Ticker: ARD.V Price: $0.17 Market cap: $3.0M Shares outstanding: 17,670,265 Revenue growth: 29.3% Current assets - Total liabilities: $800K EV: $2.2M TTM Profit: $231K P/E: 13x |
| | What it does: Armada Data Inc is an Information & Marketing Services Company providing accurate and real-time data to institutional and retail customers, through developing, owning and operating automotive pricing-related web sites and providing information technology and marketing services to its clients through B2C websites and through B2B applications. The corporation has pioneered an effective business model by capitalizing and monetizing new car pricing data that is not easily accessible to the general public or the business community.
Ginger Beef Ticker: GB.V Price: $0.205 Market cap: $2.74M Shares outstanding: 13,361,997 Revenue growth: 29.9% Current assets - Total liabilities: $1.12M EV: $1.62M TTM Profit: $521K TTM P/E: 5.3x |
| | What it does: The Company’s operations include Ginger Beef Express Ltd. (“Express”) and its wholly-owned subsidiaries Ginger Beef Choice Ltd. (“Choice”) and 1379915 Alberta Ltd. (“Crowfoot”). Express is a franchiser of Chinese food restaurants located primarily in Calgary, Alberta, and is the holding company for Choice and Crowfoot. Choice is a manufacturer of fresh and frozen Chinese food items for wholesalers primarily in Western Canada and Ontario.
Notes:- Super illiquid stock, barely trades. Hard to build a meaningful position with any relevant size. Great for the small retail investor.
Innovotech
Ticker: IOT.V
Price: $0.205
Market cap: $7.85M
Shares outstanding: 38,284,612 Revenue growth: 41.5% Current assets - Total liabilities: $500K TTM Profits: $55K P/E: 142.7x |
| | What it does: Innovotech is a Canadian biotechnology company owning proprietary intellectual property, conducting contract research and owning and providing proprietary devices for testing in multiple applications in microbiology.
Notes: - Alan Savage Chairman and single-largest shareholder. A successful microcap investor and capital allocator.
- Turnaround story with two (2) consecutive quarters of profitability.
- Consistent insider buying - Click here
- We own shares
POSaBIT Systems
Ticker: PBIT.V
Price: $0.165
Market cap: $12.4M
Shares outstanding: 75,431,225 Revenue growth: 130.8%
Current assets - Total liabilities: -$3.26M EV: $15.66M
TTM Profits: Loss of $2.6M
P/E: N/A |
| | What it does: Posabit is a financial technology company that delivers unique and innovative, blockchain-enabled payment processing and point-of-sale systems for cash-only businesses. Posabit specializes in resolving pain points for complex, high-risk, emerging industries like cannabis with an all-in-one solution that is compliant, user-friendly and utilizes top-of-the-line hardware. Posabit's unique solution provides a safer and transparent environment for merchants while creating a better overall experience for the consumer.
Notes:- Rapidly growing
- Weak balance sheet
- Recently completed convertible debt financing
- Insiders participated in recent debt financing
- Adjusted EBITDA profitable last quarter
Waverley Pharma – WAVE.V
Last Trade: $0.145 Market Cap: $7.8 million
Shares Outstanding: 54,000,000
Revenue Growth: 33.7%
Current assets - Total liabilities: $540k
EV: $7.26
TTM Profit: Loss of 740k
PE: N/A
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| | | What it does: Waverley Pharma is an emerging pharmaceutical company focused on the development and commercialization of safe, effective and affordable cancer therapeutics in the European Union, United Kingdom and North American markets. The company, through its subsidiary, is currently selling three generic oncology products in the United Kingdom, namely capecitabine, temozolomide and erlotinib. In addition, the company is developing two generic oncology products in Europe, namely pemetrexed and bortezomib, and additional products in the United States. Waverley Pharma is committed to providing patients with affordable prescription medicines that lower health care costs and provide a better quality of life.
Notes:
Pioneering Technologies – PTE.V
Last Trade: $0.08
Shares Outstanding: 56,041,746
Market Cap: $4.48 million
Revenue Growth: -19.0%
Current assets - Total liabilities: $3.96 million
EV: $520k
TTM Profit: $2.42 million
PE: N/A
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| | What it does: Pioneering, based in Mississauga, Ont., is an energy-smart technology company and the leader in innovative cooking fire prevention technologies and products in North America. Its mission is simple: to help save lives and property from the No. 1 cause of household fire -- cooking fires. The company does this by engineering and bringing to market energy-smart solutions that make consumer appliances safer, smarter and more efficient. Its patented cooking fire prevention products address the multibillion-dollar problem of cooking fires. According to the National Fire Protection Association, stovetop cooking is the No. 1 cause of household fire and fire injuries in North America. Pioneering's temperature limiting control (TLC) technology is now installed in over 300,000 multiresidential housing units across North America without a single cooking fire being reported, delivering peace of mind and a solid return on investment for its customers. Pioneering's proprietary cooking fire prevention solutions include Safe-T-element, SmartBurner, RangeMinder and Safe-T-sensor, and are suitable for the majority of the more than 140 million stoves/ranges and over 140 million microwave ovens in use throughout North America.
Notes:
- Trading at a valuation near net liquid asset value
- Possible tariff change in the US could have a positive effect on company operations
- We own shares
G6 Materials – GGG.V
Last Trade: $0.19
Shares Outstanding: 96,908,575
Market Cap: $18.4 Million
Revenue Growth: 188.0%
CA-TL: $526k
EV: $17.9 million
TTM Profit: Loss of $707k
PE: N/A |
| | What it does: G6 Materials is a technology company and world leader in creating value through the development of innovative graphene-based solutions. The company is strategically focused on serving the global air filtration and purification market with new products to meet growing demand. G6 also sells a range of graphene-based products and other materials, including but not limited to 3-D printing materials, conductive epoxies, fine chemicals, high performance composites, and research and development materials. The company's customers are among those on the Fortune 500 list of companies including Pfizer, Advanced Micro Devices and Ford Motor Company, as well as research agencies such as NASA and leading universities including Stanford.
G6 has identified new graphene-based applications to accelerate growth into the future. Accordingly, the company has a valuable IP (intellectual property) portfolio currently comprising three granted patents, three provisional patents and five patent applications filed. The company's management team and employees have a deep understanding of graphene technology based on decades of aggregate academic and commercial experience. Located in Ronkonkoma, N.Y., its premium research laboratory and scalable production facility is equipped with advanced analytical and material processing equipment.
Notes: - First quarter of profitability
- Sharp growth in revenues
- Consistently growing revenues
- Revenues include 1 time licensing fee of US$220k
- We own shares
VirtualArmour International – VAI.C
Last Trade: $0.07
Shares Outstanding: 106,508,822
Market Cap: $7.46 Million
Revenue Growth:10.1%
Current assets - Total liabilities: -$3.8 Million *-900k when adding back deferred revenues
EV: $8.36 *when adding back deferred revenues
TTM Profit: -$1.71 million
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| | | What it does: VirtualArmour International is a global cybersecurity and managed services provider that delivers customized solutions to help businesses build, monitor, maintain and secure their networks. The company maintains client monitoring and service management 24 hours a day, seven days a week, with specialist teams located in its U.S. and U.K. security operation centres. Through partnerships with best-in-class technology providers, VirtualArmour delivers leading hardware and software solutions for customers that are both sophisticated and scalable, and backed by industry-leading customer service and experience. The company's proprietary CloudCastr client portal and prevention platform provides clients with unparalleled access to real-time reporting on threat levels, breach prevention and overall network security. VirtualArmour services a wide range of clients, which include Fortune 500 companies and several industry sectors in over 30 countries across five continents.
Notes: - Heavy insider buying in last financing
- Warrant overhang
- First quarter of profitability
- $2.9 million deferred revenue
- Solid and growing recurring revenue base
- We own shares
Vigil Health Solutions – VGL.V
Last Trade: 0.31
Shares Outstanding: 18,187,506
Market Cap: $5.56 Million
Revenue Growth: 11.4%
Current assets - Total liabilities: $3.14
EV: $2.5 million
TTM Profit: Loss of $57k
PE: N/A |
| | | What it does: Vigil offers a proprietary technology platform, combining software and hardware, to provide comprehensive solutions to the expanding seniors housing market. Vigil has established a growing presence in North America and an international reputation for being on the leading edge of systems design and integration. Vigil's objective is to offer solutions for the full continuum of care. Vigil's product range includes the innovative wireless Vitality care system, featuring discreet mini-pendants, a nurse call system, mobile fall and incontinence monitoring, resident check-in, and the award-winning Vigil memory care system.
Notes:
- 2 consecutive quarters of profitability
- Heavy insider ownership
- Greg Peets Chairman and largest shareholdes
- Normal course issuer bid in progress
- We own shares
Inventronics Ltd – IVX.V
Last Trade: $0.31
Shares Outstanding: 4,405,145
Market Cap: $1.36 million
Revenue Growth: 8%
Current assets - Total liabilities: -$928k
EV: $2.29 million
TTM Profit: $548k
PE: 2.48
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| | | What it does: Inventronics designs and manufactures custom enclosures and other products for an array of customers in the telecommunications, electric utility, cable television, oil and gas, electronics, and computer service industries in North America. The corporation owns its ISO 9001-registered production facility in Brandon, Man.
Notes:
- Very small share float
- 7 of last 8 quarters were profitable
- Last quarter was a record quarter in revenue and profits
Crescita Therapeutics – CTX.T
Last Trade: $0.75
Shares Outstanding: 20,648-448
Market Cap: $15.5 million
Revenue Growth: 48.8%
Current assets - Total liabilities: $14.0
EV: $1.49 Million
TTM Profit: $2.07 million
PE: 7.5x |
| | What it does: Crescita is a growth-oriented, innovation-driven Canadian commercial dermatology company with in-house research and development, and manufacturing capabilities. The company offers a portfolio of non-prescription skin care products and early- to commercial-stage prescription drug products and owns multiple proprietary drug delivery platforms that support the development of patented formulations that can facilitate the delivery of active ingredients into or through the skin.
Supported by a sales force covering Canada and executing a business to business to consumer marketing approach, Crescita sells its non-prescription skin care products domestically through spas, medispas and medical aesthetic clinics, as well as internationally through distributors. Crescita's portfolio also includes a prescription product called Pliaglis that utilizes the company's proprietary phase-changing topical cream Peel technology, a part of the DuraPeel family, which are self-occluding, film-forming cream/gel formulations, that provide extended release delivery of the active ingredients to the site of application. Pliaglis is a topical local anesthetic cream that provides safe and effective local dermal analgesia on intact skin prior to superficial dermatological procedures. The product is currently approved in over 25 different countries and sold by commercial partners in the United States, Italy, Brazil, sold in Canada by the company, and was most recently licensed to partners in Austria and Mexico and China.
Notes:
- $13.8 million in cash
- $Recent licensing revenue lump sum
- $Normal Course issuer bid recently approved
- $Small amount of insider buying - Click here
Wrap-up
So, there you have it, twelve (12) undiscovered companies that are right around our criteria we think we're compelling enough to share. We can’t promise all – or even some of these – will be winners. But our experience shows 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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