| | 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 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.
At the beginning of this year, we released ten (10) companies, which at today's prices, have provided a 74.8% return and every stock had closed at a higher price than when it was profiled. |
| | In 2019, we only released five (5) companies which are listed below with their returns.
- Spectra Products (SSA-TSX.V) Price $0.05 / Today $0.04 / Return -20%
- FP Newspapers (FP-TSX.V) Price $0.38 / Today $1.33 / Return 250%
- Inventronics (IVX-TSX.V) Price $0.21 / Today $1.00 / Return 376%
- NexgenRx (NXG-TSX.V) Price $0.20 / Today $0.36 / Return 80%
- Aurora Solar Technologies (ACU-TSX.V) Price - 0.125 / Today / $0.245 / Return 96%
In previous years we've uncovered some monster gems that have provided our subscribers life altering returns.
Take Sangoma Technologies (STC-TSX.V) for example, where in 2016 when we highlighted the company it was trading at $0.295 and has traded as high as $5.50, or a 1,764% 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, 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 if 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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| Fab-Form Industries
Ticker: FBF.V
Price: $0.48 Market cap: $4.2M Shares outstanding: 8.82M Revenue growth: 46% Current assets - Current liabilities: $1.93M EV: $2.57M EV/EBITDA: 4.28x TTM Net income: $413K TTM P/E: 10x |
| | What it does: Fab-Form designs, develops and commercializes sustainable foundations for the construction industry. The interface of building components with the ground has always be costly and inefficient. Fab-Form develops products that automate this interface.
Notes:- Small orphaned company with almost no market interested - very undiscovered.
- Company grown its business from annual revenues of $260K to $2.89M with no dilution.
- Company has been profitable every year since 2011.
- Most of its recent business growth has come through online sales channels.
- Product adoption is slow, but we believe it's nearing a tipping point.
- Perfect type of stock for a small retail investor.
- **We own shares
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| Memex Inc
Ticker: OEE.V Price: $0.03 Market cap: $4.4M Shares outstanding:147.67M Revenue growth: 38% Current asset - Current liabilities: (-$323K) Income from operations: $181K EV: $4.8M EV/EBITDA: 15.48x P/E: N/A (Net loss of $43K) |
| | What it does: Established in 1992, Memex grew to be an industry leader in Industry Internet of Things (IIoT) through the development of MERLIN Tempus, an award-winning platform that delivers real-time, tangible increases in manufacturing productivity. Memex is on the leading edge of industry trends in computing power, machine connectivity, industry standards, advanced software technology, and manufacturing domain expertise.
Our persistent pursuit of innovative IIoT solutions led to a comprehensive understanding of the challenge's manufacturers face. We made it our mission to, "successfully transform factories of today into factories of the future." As the global leader in Machine to Machine (M2M) connectivity solutions, our hardware and software products create unparalleled visibility at all levels, from "Shop-Floor-to-Top-Floor."
The MERLIN Tempus Suite provides effective quantification and management of Overall Equipment Effectiveness (OEE) by revealing hidden capacity using real-time objective data. Further, it offers sustainable benefits that enable world-class OEE such as reducing costs, incorporating strategies for continuous LEAN improvement, and boosting bottom-line financial performance.
Notes: - Historically, management overpromised and underdelivered.
- Management has known to be more promotional about it's stock.
- Working capital is negative, and there's a high risk of a capital raise - The exception is that a TSX-Venture listed company cannot raise excessive capital sub $0.05.
- Has recently become profitable from operations - demonstrating management is improving cost structure.
- A potential turnaround story in the making.
- Too many shares outstanding, and if there's a turnaround it's likely the company consolidates its shares.
- **We own shares
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| Inventronics Limited Ticker: IVX.V
Price: $1.00
Market cap: $4.71M
Shares outstanding: 4.71M
Revenue growth: 74.4%
Current assets - Current liabilities: $1.68M
EV: $7.32M EV/EBITDA: 6.4x TTM Net income: $890K
P/E: 5.29x
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| | What it does: Inventronics Limited designs and manufactures enclosures and other products for an array of customers in the telecommunications, electric utility, cable television, energy, electronics and computer services industries in North America. The Corporation owns its ISO 9001-registered production facility in Brandon, Manitoba.
Notes:
- This is our third year in a row of highlighting this business in our Cheapies with a Chance list. The first year it was profiled was at $0.29 - and it still remains a cheap company.
- The Company recently announced a $0.20 special dividend.
- 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 growth numbers to continue on a year/year basis - but the company was too cheap not to highlight.
- Very low number of shares outstanding, and extremely illiquid - shares can be quite volatile.
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| Innovotech
Ticker: IOT.V
Price: $0.155
Market cap: $6M
Shares outstanding: 39M Revenue growth: 41.5% Current assets - Current liabilities: $768K EV: $5.4M EV/EBITDA: 19x TTM Net income: $285K P/E: 21x |
| | 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.
- Company is executing on its turnaround story with five (5) consecutive quarters of profitability and reporting record revenues.
- Consistent insider buying - Click here
- **We own shares
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| Vigil Health Solutions
Ticker: VGL.V
Price: $0.66 Market cap: $12M Shares outstanding: 18M Revenue growth: 36% Current assets - Current liabilities: $4.24M EV: $9M EV/EBITDA: 8.1X TTM Net income: $843K P/E: 14x |
| | What it does: Vigil offers a 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: - Pender Fund owns 3M shares or 16.88%
- Insiders own 6.9M shares or 38% of the company.
- Very tight share structure - Collective ownership from reporting shareholder is 71% or 12.72M shares.
- This is the second year in a row of highlighting this business in our Cheapies with a Chance list. The first year it was profiled was at $0.37 - and we believe this is a great "Coffee Can" stock that will continue to perform exceptionally well over a longer time horizon.
- **We own shares
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| Timia Capital Corp.
Ticker: TCA.V
Price: $0.30
Market cap: $15.4M
Shares outstanding: 51.4M Revenue growth: 106%
Current assets - Current liabilities: $12.15MM EV: $15.66M EV/EBITDA: 5.5x
TTM Net income: $1.7M
P/E: 9x |
| | What it does: TIMIA Capital Corporation has developed a proprietary loan origination platform that services private market, high-yield loan opportunities, thereby earning recurring fees and a share of the profit. While focusing on the fast growing, global, business-to-business Software-as-a-Service (or SaaS) segment, TIMIA's automated loan origination system is applicable to multiple technology sectors, it creates scalable and profitable growth for TIMIA's stakeholders.
Notes:- Trades at a significant discount to its book value of $32.8M.
- Strong cash position of $11.4M.
- Recent insider buying - click here.
- Seasoned Board of Directors and strong management team.
BluMetric Environmental Ticker: BLM.V Price: $0.72 Market Cap: $20.8 million
Shares Outstanding: 28.94M
Revenue Growth: 41.6%
Current assets - Current liabilities: $8.77M
EV: $19.1M EV/EBITDA: 3.49x
TTM Net income: $3.66M
P/E: 5.68x
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| | | What it does: BluMetric Environmental Inc. is a publicly traded environmental consulting and engineering company with expertise across professional and trade disciplines and technologies that allow for the design, fabrication and delivery of sustainable solutions to environmental and water challenges. BluMetric has approximately 170 employees operating in ten offices and over 40 years of expertise. Headquartered in Ottawa, Ontario, BluMetric's team of industry experts serves Commercial, Industrial, Military, Mining and Government clients in Canada and the United States.
Notes:
- Significant improvement in EBITDA and net income the past year.
- Historically, the company has not showed growth and the twelve trailing financials may appear stronger than historical numbers because of COVID.
- Very low insider ownership with only 406K shares or less than 1.5% owned by insiders.
BeWhere HoldingsTicker: BEW.V Price: $0.28
Shares Outstanding: 88M
Market Cap: $24.66M
Revenue Growth: 40.7%
Current assets - Current liabilities: $3.69M
EV: $22.18M EV/EBITDA: 35.2x
TTM Net loss: (-$1.7M * Includes 1x write-down)
P/E: N/A
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| | What it does: is a Mobile Internet of Things ("M-IoT") solutions company that designs and sells self-powered hardware with sensors and software applications. Our solutions serve two main markets: (1) Asset Tracking remote location tracking various assets such as trailers, dry vans etc., and (2) Connected Sensors of to remotely track sensors information on non-powered fixed and movable assets. BeWhere's devices use the latest available cellular technologies (LTE-M and NB-IoT) to transmit collected data into mobile applications and cloud-based platforms, at a much lower cost than traditional cellular networks. BeWhere also offer solutions that can be fully integrated with existing software, and white-labeled. BeWhere' solutions are cutting edge, offering low-cost sophisticated technology which allows customers to deploy remote tracking technology where cost was previously prohibitive.
Notes:
- Recent and diverse insider buying, including the VP of Bell a channel partner for the company - Click here
- Second quarter of net income and third quarter of EBITDA profitability.
- Reached a major inflection point with recurring revenues and covering costs to maintain operating profits - no need to dilute.
- Recurring revenues of $2.98M - 8x ARR.
- Recorded record hardware sales in its most recent quarter (Q2) of $1.62M
- Company is expected to have a strong second half of the year.
- New products BeMini released and we believe any market adoption for this new product not currently priced into the stock.
- **We own shares
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| Water Ways Technologies
Ticker: WWT.VPrice: 0.245
Shares Outstanding: 138M
Market Cap: $33.69M
Revenue Growth: 99%
Current assets - Current liabilities: $3.55M
EV: $31.8M EV/EBITDA: N/A (EBITDA loss of -$40K) TTM Net loss of: (-$929K)
PE: N/A
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| | | What it does: Water Ways Technologies Inc., through its subsidiaries, is a global provider of Israeli-based agriculture technology, providing water irrigation solutions to agricultural producers. Water Ways Technologies competes in the global irrigation water systems market with a focus on developing solutions with commercial applications in the micro and precision irrigation segments of the overall market. At present, Water Ways Technologies' main revenue streams are derived from the following business units: (i) Projects Business Unit; and (ii) Component and Equipment Sales Unit. Water Ways Technologies is capitalizing on the opportunities presented by micro and smart irrigation, while also making a positive mark on society by making these technologies more widely available, especially in developing markets such as Africa and Latin America and developed markets such as China and Canada. Water Ways Technologies irrigation projects include vineyards, Cotton fields, Apple and Orange orchards, Blueberries, Medical Cannabis, fresh produce cooling rooms and more, in over 15 countries.
Notes:
- Diluted share structure and after accounting for convertible securities there's 161M shares fully diluted.
- Not profitable, and is reliant on capital markets to continue its growth.
- Good insider ownership of 57.94M shares or 42%
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| Miravo Healthcare Ticker: MRV.T Price: $1.36
Shares Outstanding: 11.39M
Market Cap: $15.49M
Revenue Growth: 27%
Current Assets - Current Liabilities: $24.18M
EV: $100 million EV/EBITDA: N/A Last Q annualized EV/EBITDA: 3.37x
TTM Net loss: (-$6.76M) Last Q annualized P/E: 0.4x
P/E: N/A
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| | What it does: Miravo is a Canadian focused, healthcare company with global reach and a diversified portfolio of commercial products. The Company's products target several therapeutic areas, including pain, allergy, neurology and dermatology. The Company's strategy is to in-license and acquire growth-oriented, complementary products for Canadian and international markets. Miravo's head office is located in Mississauga, Ontario, Canada, the international operations are located in Dublin, Ireland and the Company's manufacturing facility is located in Varennes, Québec, Canada. The Varennes facility operates in a Good Manufacturing Practices (GMP) environment respecting the U.S, Canada and E.U. GMP regulations and is regularly inspected by Health Canada and the U.S. Food and Drug Administration.
Notes: - Insider buying - Click here
- The company has a lot of debt of $85.5M
- At the current rate, the company has strong cash from operating activities to continue paying down debt, creating a healthy
- Adequate working capital and cash position and does not need to dilute. However, given the sizeable amount of debt, mistakes can potentially be more costly.
- Low inside ownership with only 577K shares or about 5% of the company.
- Multiple directors tied to Crescita Therapeutics (CTX-TSX.V)
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| Wrap-up
So, there you have it, ten (10) 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 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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