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Message: TSX Venture Microcap Tech Stock Comparison
TSX Venture Microcap Tech Stock Comparison
The TSX Venture has struggled as many small gold, oil and other explorers have had their stock prices hammered down over the last two years. This makes sense as the price of gold has sunk while many senior metals companies around the world both big and small have tanked in the past two years as well. What makes much less sense is how the struggles of the TSXV has also brought down the small cap tech sector on the exchange. The NASDAQ has recently crossed the 4,000 mark for the first time in 13 years so tech stocks on other exchanges are doing well.
The lack of appetite for small cap techs on the Venture may stem from many investors having been burnt on 2011's most popular pump and subsequent crash Intertainment Media. The struggles of large cap companies of yore like Nortel and more recently BlackBerry also can be to blame for lack of interest in Canadian tech companies. But much of the problem lies with the fact that these stocks are not covered by mainstream analysts and most people simply do not know about them or their potential. TSX Tech News And Analysis has put together a detailed analysis of the TSXV tech industry in order to stimulate interest in the top performers in this sector. This analysis is a follow up to the one done back in October, with Q3 stats for every company now available it was an appropriate time to update it.
Click here to see the details of all the technology stocks listed on the TSX Venture. There are 106 tech companies listed on the Venture with a combined value of over $1.6 billion in market cap, a list of those companies can be seen here (opens a Microsoft Excel worksheet).
Out of the 106 companies, 41 of them were deemed appropriate for this analysis. Three criteria were used in determining this list. First, each stock must have had sufficient amount of financial and trading data, so some newer listings did not make the cut. They will make the cut in the future when they have more data. Second, a cut off of around $60M in market cap was decided based on the fact that the purpose of this is to compare uncovered microcap stocks. There's a fairly large gap between the largest companies that made this list of around $50-$60M in size and the five that did not make the list that were all $80M in size and above. Those larger ones may have more appropriate peers on the big board on the TSX. Finally, each company must have had adequate trading volume and liquidity. It makes no sense to compare a stock if it has only 100,000 shares in volume per month with a huge bid-ask spread. You can't buy into that type of stock without vastly overpaying on the thin ask. These are the 41 companies that made this list by name, symbol, shares outstanding, stock price as of December 9, 2013 and resulting market cap:
While this list was not altered from the first time this analysis was done, one company that stands out as an interesting tech play is Pivot Technology Solutions (PTG.V). They listed through an amalgamation agreement with Acme Capital in March 2013 so it hasn't been listed long enough to make the cut. The company's Q3 financials shows that it is has achieved $326M in revenue year-to-date and pulling a small profit of $1.6M for the quarter. With only a $18M market cap, it has a very low Price to Sales ratio. On the flip side, the company's working capital is massively negative. It's also very unusual for an American company to do an RTO to get listed on the Venture without having an OTC symbol in the US. TSX Tech News And Analysis will continue to follow this stock and add it to this comparison in the near future.
Other Q3 highlights include:
NCI having over 170% revenue growth for Q3 along with nearly $800K in profits as it fulfills its contracts signed earlier this year.
FSW grew revenue 128% for Q3, from $6.4M to $14.6M.
PHO has a record quarter with 93% in revenue growth and over $1.1M in net income, tripling Q3 2012's result.
XX and WAN continued to show strong and sustained profits and margin improvements on decent revenue growth.
SCG recorded a small profit of $37K in net income as operating margin improved to 1.8% despite a 50% decline in revenue from Q3 2012. It looks like they have finally found their profitable niche providing prepaid card solutions to various levels of government as they quickly cast away the old business. Through the magic of math their ranking this time around did not improve versus their ranking in October despite these steps forward. If the company continues to show this improvement, they will rise up quickly in this ranking.
ZMD is like a mirror image to SCG. Their last quarter was disappointing with revenue being cut nearly in half from the same quarter a year ago and a net loss of close to $1M. Yet thanks to the strength of their previous quarters, they still take the top spot in the comparison as revenue growth is still great and the company shows positive earnings for the last four quarters.
Other companies that disappointed include:
INT with $800K in revenue which was down 37% from the prior year's quarter. That revenue figure was the lowest INT had in any quarter since it became a household name in early 2011.
TNC with a net income loss of $570K that took them to negative earnings for their fiscal year.
NGH also lost money in Q3, turning their company into a money-loser for the last four quarters.
On another interesting note, LXV recorded revenue for the first time in the last four quarters after all their acquisitions but put up a big loss.
Summary of Results
All the financial data that was used to analyze these companies can be seen here. Great care has been taken to ensure the accuracy of this data, however as a mix between manual and automatic processes have been used, some numbers may be subject to human error. Always confirm the accuracy of the numbers yourself before basing investment decisions off of them.
Four aspects have been used in order to rank these 41 companies. They are value, growth, profitability and sustainability. Value ranks how cheap or expensive a stock is compared to its market cap and to its peers. The value metric used was the Price to Sales ratio. Revenue growth which compared the previously reported four quarters to the four quarters reported prior to them was used. Operating margin, which is each company's operating profit (or loss) expressed as a percentage of their revenue. Sustainability is each company's ability (or lack thereof) to maintain operations without the need to finance, dilute or go into bankruptcy. A point system was used where the company that finishes first on the list gets one point while the company that finishes last gets 41. After tallying up the four sections, this is the order in which the 41 stocks get ranked, along with the previous (prv) score and ranking for each company from back in October and the change from the last one to this one. The lower the score is, the better:
Looking at this list we can see that the top 3, ZMD, chosen by TSX Tech News And Analysis at 6 cents, NCI, chosen by TSX Tech News And Analysis at 16 cents in June and FSW, chosen by TSX Tech News And Analysis at 9 cents in July, rank #1-3 on this list.
NCI overtook FSW for the number two spot despite FSW improve 3 basis points as NCI improved 14 basis points thanks to the strong revenue growth. Even under the Price to Sales value metric, NCI does well now. As noted above, ZMD's weak latest quarterly report did not punish its ranking. It will be interesting to see if the last quarter was an aberration or if it will face continued pressure for the #1 spot on this ranking in the future.
Some may say that the data is biased because the stocks at the top are TSX Tech News And Analysis picks. But the financial data is straight from their reports and the four metrics used to evaluate the companies and the methods in which to calculate them are apt. Some people may use slight variations in metrics and methods of ranking but all three of these companies would do well no matter what. In some ways the TSX Tech News And Analysis rankings can undervalue these companies as FSW has a far better P/S then other companies ranked a few spots below. Any of the stocks in the top 10 of this ranking are worth a look by those interested in the sector.
Looking at some other stocks on this list, we see companies like SelectCore and Odesia represent great value but struggle in growth and profitability. On one hand their great value indicator is based on revenues and margins which are in decline as their businesses are struggling or they are in the midst of a transformation. On the other hand, a slight turnaround in their fortunes can see these stocks have great upside potential.
On the opposite end of the spectrum are companies like POET Technologies, Sprylogics and iSign Media which rank well in growth but very poorly on value and margin metrics. Some may say that the value in these businesses lie in their technology or patents that they own. But as we have seen with BlackBerry, technology may not be given the value some expect. Particularly in the case of PTK where they already discontinued their solar business and rely on their semiconductor business where the company will need to continuously upgrade its technology in order to compete in the long term. Until those businesses can gain traction and monetize, they will continue to do poorly on the value and profitability metrics. On the flip side, revenue growth is very strong on a small base and the companies have no immediate sustainability issues as they all have recently been able to do major financing which means there is large venture capital dollars out there that see value in their various technologies.
Finally there are companies like Las Vegas From Home.com Entertainment and Intertainment Media which rank near the bottom in all categories. Most shareholders of these ones would not argue with these rankings as their poor financial performance has resulted in poor stock price returns. Certain companies like Ackroo and LX Ventures are in the process of growing a newly developed business. They may rank poorly now, but there is some hope in their subsequent news releases that revenue may be forthcoming which will help them in future rankings.
Value
To determine value the Price to Sales metric was used. Price to Earnings is the most popular method in which evaluate tech stocks, however given that most of these companies do not earn a profit the P/S ratio is a more appropriate one in which to evaluate the full spectrum of these 41 stocks. A company's earning power is taken into consideration in the profitability and sustainability sections. Two straightforward articles that go into detail as to why the P/S ratio is the most appropriate for tech stocks can be seen here and here.
Looking at the total sum of these companies, $656M in total market cap gives you $387M in revenue for a total P/S ratio of 1.70. That's up from October's result of 1.54 as the Venture tech companies have been gaining traction in the markets but comparing this figure to some of the most popular NASDAQ stocks, we see that Amazon has a P/S of over 2, Tesla Motors has a P/S of 10, Zynga has a P/S of over 3, and Google has a P/S of over 6. When compared to these companies the Venture tech stocks look undervalued as usually start up companies and small caps are supposed to have higher P/S metrics when compared to their larger counterparts.
Fireswirl ranks extremely well on this list at #5. Note that the four companies above FSW show poor revenue growth and mediocre margins, so the market ranks them very low in market cap relative to their revenue. With that in mind, a company like SelectCore with only a 0.10 P/S certainly has a chance to provide shareholders who have a strong will and very high risk tolerance with outstanding gains should the business turn around before it gets into severe financial difficulty.
Despite the rather low 1.70 P/S for the industry, FSW at 0.27 and ZMD at 0.62 are significantly cheaper compared to that average with ZMD needing to nearly triple in stock price and FSW needing to increase over 6 times just to come to the average. NCI ranks average with a 1.69 P/S but with such strong margins and good revenue growth, its P/S should be compared to the bigger players on the NASDAQ.
Growth
The growth metric compares trailing 12-month revenue (Revenue TTM) to the amounts reported in the four quarters prior to that (Revenue 13-24 mo). Each company is ranked by their percentage gain but the dollar amount of growth is also provided for comparison purposes.
ZMD is third in terms of revenue growth with a 140% gain while FSW ranks 4th and NCI 5th. What stands out for FSW is the dominance in terms of its dollar figure in revenue growth in addition to the percentage. It's one thing to quadruple in revenue from 100K to 400K like PTK did. It's quite another for a company to more than double its revenue from $21M to $46M like FSW did. Out of these 41 companies revenue rose a combined total of $8M. FSW makes up $25M of that. QHR comes in second in dollar revenue growth at $5.3M. FSW grew more in revenue than what 36 of these 40 other companies have in total revenue, with many of them having larger market caps than FSW.
While a 2.1% revenue growth appears very mediocre for the industry, a lot of that has to to with the companies that rank at the top of the P/S value metric with SCG and VV accounting for a $36M decline. The growth section and the margin section expose the weakness that relying solely on the P/S ratio for stock valuation can have. A low P/S like what FSW has based off of improving margins and strong revenue growth are much superior to even lower P/S stocks like VV where margins and growth are currently going in the wrong direction.
Margin
Operating margin is used calculate the margin for each company below. Operating margin differs from the comprehensive income to shareholders which may include accounting differences for minority interest, discontinued operations, taxes or gains and losses from exchange rates. Comprehensive earnings are what shareholders ultimately get paid on and is the numerator in EPS so it cannot be ignored. However, when trying to analyze the predictive power of margin growth/shrinkage on a business, operating margins are the best to use as it excludes the non-recurring or inconsistent aspects of the business that hits the bottom line. Some companies don't split out items like foreign exchange gains/losses from their operating margin line in their financials so these numbers aren't 100% apples to apples comparison across all companies. However, it should be close enough to get a clear idea of where each company ranks relative to its peers within a couple of points to the positive or negative.
The trailing 12 month margin (Margin TTM) is compared against the margins from the four quarters previous to that so you get an idea of how each company has improved or declined. This also aids in mitigating any accounting variances between each company as presumably each company's accounting policies stay static from year to year so you can at least judge their margin in terms of direction with 100% certainty. The final ranking is based on the Margin TTM number but when looking at this list you should also consider the improvement column.
ZMD and NCI clearly stand out as the top performers here. ZMD has had the biggest turnaround from -79% to 33% despite their past quarter being weak. To see the details on how it improved its performance, click here. In terms of margin, FSW showed slight improvement and is on the brink of profitability. While some people criticize FSW for having a mediocre margin, in the context of its revenue growth and P/S metric, the margin is outstanding. With a -0.5% FSW still ranks #10 which means it has a better margin than 31 other companies and improved from -2.5% in the prior four quarters.
Sustainability
Sustainability is a measure of each company's ability to maintain operations. Companies with working capital issues or large operating losses are much more likely to dilute their shares in the future or are at risk of bankruptcy. Long term debt can also be an issue for a company that is unprofitable. Listed below are each company's current assets, current liabilities, working capital and long term debt as reported from their latest financials. Keep in mind the disclaimer above regarding the accuracy of this data so you should always double check to verify it yourself before making investment decisions. Any debt or equity financing that took place after the company's financials has been mentioned in the Notes column. Those amounts have been added to the current assets (all assumed to be cash) if it is an equity financing and have been added to current assets and current liabilities or long term debt as appropriate if it was debt financing.
When ranking each company, three tiers were used where the companies in each tier were ranked against each other within that tier. The first seven companies are the ones which earned positive operating income over the past 4 quarters, seen in the column Operating Income TTM. The next tier are companies with operating losses but have positive working capital. They are ranked in order of how many months they have left before their working capital erodes to zero, assuming the same burn rate. That is the Months WC column. As an example, Sangoma has $10.4M in working capital with an operating loss of $273K. In the unlikely event that its burn rate was to continue indefinitely, it would have about 38 years worth of working capital, or just under 458 months. The last tier of companies are those with negative working capital and operating losses where the Months CA column represents how many more months of operations they have before they run out of cash and other current assets based on current burn rates.
Admittedly, this list isn't perfect. One could certainly argue that Sangoma is more sustainable than ZoomMed which has positive working capital but also a fair amount of long term debt. But this process was the best way to determine a relatively accurate way of ranking sustainability based on burn rates and current working capital without influencing it too much with personal opinion. Beyond the numbers, there is really not much to analyze here. It is pretty straightforward to see that the companies in the top half of this list are highly likely to survive with a few of them needing to do a financing within the next year or two. The ones near the bottom of the list are in grave danger of going into bankruptcy and must finance and significantly dilute the company or sell off assets in order to continue operating.
After reviewing this analysis you can see that there are some very good opportunities to be had on the TSX Venture within the tech sector. The entire industry is cheap when compared to the tech stocks south of the border. While many of them are cheap because they face severe operating or financial issues, the ones that make the top of this list and are strong in the majority of the four aspects of value, growth, profitability and sustainability without any glaring weaknesses clearly offer significant opportunities for future stock price growth that far surpasses many other stocks out there. TSX Tech News And Analysis remains very bullish on its three picks that made this list - FSW, NCI and ZMD - but any stock that is near the top of this ranking is worthy of a look by investors who wish to add some microcap tech exposure to their portfolio, especially considering how well several others that made the top ten like PHO, WAN and QHR have fared in the past two months.
The lack of appetite for small cap techs on the Venture may stem from many investors having been burnt on 2011's most popular pump and subsequent crash Intertainment Media. The struggles of large cap companies of yore like Nortel and more recently BlackBerry also can be to blame for lack of interest in Canadian tech companies. But much of the problem lies with the fact that these stocks are not covered by mainstream analysts and most people simply do not know about them or their potential. TSX Tech News And Analysis has put together a detailed analysis of the TSXV tech industry in order to stimulate interest in the top performers in this sector. This analysis is a follow up to the one done back in October, with Q3 stats for every company now available it was an appropriate time to update it.
Click here to see the details of all the technology stocks listed on the TSX Venture. There are 106 tech companies listed on the Venture with a combined value of over $1.6 billion in market cap, a list of those companies can be seen here (opens a Microsoft Excel worksheet).
Out of the 106 companies, 41 of them were deemed appropriate for this analysis. Three criteria were used in determining this list. First, each stock must have had sufficient amount of financial and trading data, so some newer listings did not make the cut. They will make the cut in the future when they have more data. Second, a cut off of around $60M in market cap was decided based on the fact that the purpose of this is to compare uncovered microcap stocks. There's a fairly large gap between the largest companies that made this list of around $50-$60M in size and the five that did not make the list that were all $80M in size and above. Those larger ones may have more appropriate peers on the big board on the TSX. Finally, each company must have had adequate trading volume and liquidity. It makes no sense to compare a stock if it has only 100,000 shares in volume per month with a huge bid-ask spread. You can't buy into that type of stock without vastly overpaying on the thin ask. These are the 41 companies that made this list by name, symbol, shares outstanding, stock price as of December 9, 2013 and resulting market cap:
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While this list was not altered from the first time this analysis was done, one company that stands out as an interesting tech play is Pivot Technology Solutions (PTG.V). They listed through an amalgamation agreement with Acme Capital in March 2013 so it hasn't been listed long enough to make the cut. The company's Q3 financials shows that it is has achieved $326M in revenue year-to-date and pulling a small profit of $1.6M for the quarter. With only a $18M market cap, it has a very low Price to Sales ratio. On the flip side, the company's working capital is massively negative. It's also very unusual for an American company to do an RTO to get listed on the Venture without having an OTC symbol in the US. TSX Tech News And Analysis will continue to follow this stock and add it to this comparison in the near future.
Other Q3 highlights include:
NCI having over 170% revenue growth for Q3 along with nearly $800K in profits as it fulfills its contracts signed earlier this year.
FSW grew revenue 128% for Q3, from $6.4M to $14.6M.
PHO has a record quarter with 93% in revenue growth and over $1.1M in net income, tripling Q3 2012's result.
XX and WAN continued to show strong and sustained profits and margin improvements on decent revenue growth.
SCG recorded a small profit of $37K in net income as operating margin improved to 1.8% despite a 50% decline in revenue from Q3 2012. It looks like they have finally found their profitable niche providing prepaid card solutions to various levels of government as they quickly cast away the old business. Through the magic of math their ranking this time around did not improve versus their ranking in October despite these steps forward. If the company continues to show this improvement, they will rise up quickly in this ranking.
ZMD is like a mirror image to SCG. Their last quarter was disappointing with revenue being cut nearly in half from the same quarter a year ago and a net loss of close to $1M. Yet thanks to the strength of their previous quarters, they still take the top spot in the comparison as revenue growth is still great and the company shows positive earnings for the last four quarters.
Other companies that disappointed include:
INT with $800K in revenue which was down 37% from the prior year's quarter. That revenue figure was the lowest INT had in any quarter since it became a household name in early 2011.
TNC with a net income loss of $570K that took them to negative earnings for their fiscal year.
NGH also lost money in Q3, turning their company into a money-loser for the last four quarters.
On another interesting note, LXV recorded revenue for the first time in the last four quarters after all their acquisitions but put up a big loss.
Summary of Results
All the financial data that was used to analyze these companies can be seen here. Great care has been taken to ensure the accuracy of this data, however as a mix between manual and automatic processes have been used, some numbers may be subject to human error. Always confirm the accuracy of the numbers yourself before basing investment decisions off of them.
Four aspects have been used in order to rank these 41 companies. They are value, growth, profitability and sustainability. Value ranks how cheap or expensive a stock is compared to its market cap and to its peers. The value metric used was the Price to Sales ratio. Revenue growth which compared the previously reported four quarters to the four quarters reported prior to them was used. Operating margin, which is each company's operating profit (or loss) expressed as a percentage of their revenue. Sustainability is each company's ability (or lack thereof) to maintain operations without the need to finance, dilute or go into bankruptcy. A point system was used where the company that finishes first on the list gets one point while the company that finishes last gets 41. After tallying up the four sections, this is the order in which the 41 stocks get ranked, along with the previous (prv) score and ranking for each company from back in October and the change from the last one to this one. The lower the score is, the better:
| Rank | Name | Value | Growth | Margin | Sustainability | Total | Prv Total | Change | Prv Rank |
| 1 | ZoomMed Inc. | 11 | 3 | 2 | 7 | 23 | 22 | -1 | 1 |
| 2 | NTG Clarity Networks Inc. | 16 | 5 | 1 | 3 | 25 | 39 | 14 | 3 |
| 3 | Fireswirl Technologies Inc. | 5 | 4 | 10 | 11 | 30 | 33 | 3 | 2 |
| 4 | Photon Control Inc. | 19 | 13 | 4 | 1 | 37 | 49 | 12 | 8 |
| 5 | Avante Logixx Inc. | 18 | 11 | 5 | 4 | 38 | 48 | 10 | 7 |
| 6 | Wanted Technologies Corporation | 24 | 15 | 3 | 2 | 44 | 47 | 3 | 6 |
| 7 | QHR Corporation | 17 | 17 | 6 | 5 | 45 | 42 | -3 | 4 |
| 8 | Quorum Information Technologies Inc. | 8 | 21 | 8 | 8 | 45 | 54 | 9 | 9 |
| 9 | VIQ Solutions Inc. | 6 | 26 | 13 | 10 | 55 | 56 | 1 | 10 |
| 10 | TIO Networks Corp | 10 | 25 | 11 | 12 | 58 | 47 | -11 | 5 |
| 11 | Sangoma Technologies Corporation | 9 | 28 | 12 | 9 | 58 | 62 | 4 | 12 |
| 12 | ProntoForms Corporation | 14 | 9 | 20 | 16 | 59 | 68 | 9 | 16 |
| 13 | TransGaming Inc. | 13 | 10 | 16 | 23 | 62 | 74 | 12 | 17 |
| 14 | Odesia Group Inc. | 2 | 18 | 14 | 29 | 63 | 68 | 5 | 15 |
| 15 | Route1 Inc. | 20 | 33 | 7 | 6 | 66 | 64 | -2 | 13 |
| 16 | GINSMS Inc. | 26 | 2 | 23 | 25 | 76 | 77 | 1 | 18 |
| 17 | Versatile Systems Inc. | 4 | 29 | 15 | 30 | 78 | 80 | 2 | 20 |
| 18 | Nightingale Informatix Corporation | 12 | 31 | 9 | 28 | 80 | 57 | -23 | 11 |
| 19 | ePals Corporation | 7 | 12 | 26 | 38 | 83 | 78 | -5 | 19 |
| 20 | Medworxx Solutions Inc. | 15 | 27 | 18 | 26 | 86 | 67 | -19 | 14 |
| 21 | Cortex Business Solutions Inc. | 28 | 14 | 22 | 22 | 86 | 90 | 4 | 24 |
| 22 | iSign Media Solutions Inc. | 32 | 6 | 31 | 19 | 88 | 89 | 1 | 23 |
| 23 | SelectCore Ltd. | 1 | 38 | 17 | 33 | 89 | 88 | -1 | 22 |
| 24 | The Mint Corporation | 3 | 22 | 28 | 36 | 89 | 95 | 6 | 25 |
| 25 | OPSENS Inc. | 27 | 30 | 19 | 14 | 90 | 82 | -8 | 21 |
| 26 | Ackroo Inc. | 31 | 8 | 32 | 24 | 95 | 105 | 10 | 31 |
| 27 | POET Technologies Inc. | 38 | 1 | 37 | 20 | 96 | 96 | 0 | 28 |
| 28 | Digital Shelf Space Corp. | 22 | 35 | 24 | 17 | 98 | 95 | -3 | 27 |
| 29 | Enablence Technologies Inc. | 21 | 36 | 25 | 18 | 100 | 109 | 9 | 32 |
| 30 | Magor Corporation | 30 | 24 | 27 | 21 | 102 | 101 | -1 | 30 |
| 31 | Wi2Wi Corporation | 25 | 23 | 21 | 34 | 103 | 114 | 11 | 34 |
| 32 | Extenway Solutions Inc. | 33 | 7 | 35 | 37 | 112 | 100 | -12 | 29 |
| 33 | Sensio Technologies Inc. | 29 | 37 | 33 | 15 | 114 | 131 | 17 | 38 |
| 34 | Sprylogics International Corp. | 34 | 16 | 34 | 31 | 115 | 95 | -20 | 26 |
| 35 | E.S.I. Environmental Sensors Inc. | 35 | 19 | 29 | 32 | 115 | 120 | 5 | 36 |
| 36 | Valdor Technology International Inc. | 37 | 20 | 36 | 27 | 120 | 123 | 3 | 37 |
| 37 | Intertainment Media Inc. | 23 | 32 | 30 | 39 | 124 | 117 | -7 | 35 |
| 38 | LX Ventures Inc. | 41 | 34 | 39 | 13 | 127 | 139 | 12 | 39 |
| 39 | Times Three Wireless Inc. | 36 | 39 | 38 | 41 | 154 | 152 | -2 | 40 |
| 40 | Star Navigation Systems Group Ltd. | 40 | 40 | 41 | 35 | 156 | 113 | -43 | 33 |
| 41 | Las Vegas From Home.com Entertainment | 39 | 41 | 40 | 40 | 160 | 158 | -2 | 41 |
Looking at this list we can see that the top 3, ZMD, chosen by TSX Tech News And Analysis at 6 cents, NCI, chosen by TSX Tech News And Analysis at 16 cents in June and FSW, chosen by TSX Tech News And Analysis at 9 cents in July, rank #1-3 on this list.
NCI overtook FSW for the number two spot despite FSW improve 3 basis points as NCI improved 14 basis points thanks to the strong revenue growth. Even under the Price to Sales value metric, NCI does well now. As noted above, ZMD's weak latest quarterly report did not punish its ranking. It will be interesting to see if the last quarter was an aberration or if it will face continued pressure for the #1 spot on this ranking in the future.
Some may say that the data is biased because the stocks at the top are TSX Tech News And Analysis picks. But the financial data is straight from their reports and the four metrics used to evaluate the companies and the methods in which to calculate them are apt. Some people may use slight variations in metrics and methods of ranking but all three of these companies would do well no matter what. In some ways the TSX Tech News And Analysis rankings can undervalue these companies as FSW has a far better P/S then other companies ranked a few spots below. Any of the stocks in the top 10 of this ranking are worth a look by those interested in the sector.
Looking at some other stocks on this list, we see companies like SelectCore and Odesia represent great value but struggle in growth and profitability. On one hand their great value indicator is based on revenues and margins which are in decline as their businesses are struggling or they are in the midst of a transformation. On the other hand, a slight turnaround in their fortunes can see these stocks have great upside potential.
On the opposite end of the spectrum are companies like POET Technologies, Sprylogics and iSign Media which rank well in growth but very poorly on value and margin metrics. Some may say that the value in these businesses lie in their technology or patents that they own. But as we have seen with BlackBerry, technology may not be given the value some expect. Particularly in the case of PTK where they already discontinued their solar business and rely on their semiconductor business where the company will need to continuously upgrade its technology in order to compete in the long term. Until those businesses can gain traction and monetize, they will continue to do poorly on the value and profitability metrics. On the flip side, revenue growth is very strong on a small base and the companies have no immediate sustainability issues as they all have recently been able to do major financing which means there is large venture capital dollars out there that see value in their various technologies.
Finally there are companies like Las Vegas From Home.com Entertainment and Intertainment Media which rank near the bottom in all categories. Most shareholders of these ones would not argue with these rankings as their poor financial performance has resulted in poor stock price returns. Certain companies like Ackroo and LX Ventures are in the process of growing a newly developed business. They may rank poorly now, but there is some hope in their subsequent news releases that revenue may be forthcoming which will help them in future rankings.
Value
To determine value the Price to Sales metric was used. Price to Earnings is the most popular method in which evaluate tech stocks, however given that most of these companies do not earn a profit the P/S ratio is a more appropriate one in which to evaluate the full spectrum of these 41 stocks. A company's earning power is taken into consideration in the profitability and sustainability sections. Two straightforward articles that go into detail as to why the P/S ratio is the most appropriate for tech stocks can be seen here and here.
| Name | Market Cap | Revenue TTM | P/S | Rank |
| SelectCore Ltd. | 3,747,571 | 36,152,469 | 0.10 | 1 |
| Odesia Group Inc. | 2,385,029 | 14,142,863 | 0.17 | 2 |
| The Mint Corporation | 807,825 | 4,483,133 | 0.18 | 3 |
| Versatile Systems Inc. | 7,864,282 | 34,996,520 | 0.22 | 4 |
| Fireswirl Technologies Inc. | 12,267,465 | 45,574,953 | 0.27 | 5 |
| VIQ Solutions Inc. | 5,002,635 | 14,424,183 | 0.35 | 6 |
| ePals Corporation | 5,854,654 | 16,349,709 | 0.36 | 7 |
| Quorum Information Technologies Inc. | 2,947,548 | 7,782,715 | 0.38 | 8 |
| Sangoma Technologies Corporation | 6,054,260 | 12,674,147 | 0.48 | 9 |
| TIO Networks Corp | 21,443,976 | 40,456,886 | 0.53 | 10 |
| ZoomMed Inc. | 4,584,422 | 7,372,067 | 0.62 | 11 |
| Nightingale Informatix Corporation | 16,788,401 | 17,823,396 | 0.94 | 12 |
| TransGaming Inc. | 14,518,749 | 10,038,832 | 1.45 | 13 |
| ProntoForms Corporation | 6,034,822 | 3,701,680 | 1.63 | 14 |
| Medworxx Solutions Inc. | 9,372,153 | 5,694,531 | 1.65 | 15 |
| NTG Clarity Networks Inc. | 14,792,215 | 8,735,736 | 1.69 | 16 |
| QHR Corporation | 56,595,228 | 33,343,976 | 1.70 | 17 |
| Avante Logixx Inc. | 15,395,557 | 8,271,049 | 1.86 | 18 |
| Photon Control Inc. | 27,125,007 | 13,119,848 | 2.07 | 19 |
| Route1 Inc. | 17,190,446 | 6,184,833 | 2.78 | 20 |
| Enablence Technologies Inc. | 21,264,780 | 7,038,000 | 3.02 | 21 |
| Digital Shelf Space Corp. | 3,848,405 | 1,265,694 | 3.04 | 22 |
| Intertainment Media Inc. | 13,036,705 | 3,878,642 | 3.36 | 23 |
| Wanted Technologies Corporation | 29,715,971 | 7,640,610 | 3.89 | 24 |
| Wi2Wi Corporation | 16,309,738 | 4,102,000 | 3.98 | 25 |
| GINSMS Inc. | 7,472,937 | 1,653,243 | 4.52 | 26 |
| OPSENS Inc. | 37,382,267 | 7,526,422 | 4.97 | 27 |
| Cortex Business Solutions Inc. | 44,066,249 | 6,164,138 | 7.15 | 28 |
| Sensio Technologies Inc. | 5,281,547 | 591,971 | 8.92 | 29 |
| Magor Corporation | 16,552,156 | 1,766,052 | 9.37 | 30 |
| Ackroo Inc. | 10,285,944 | 1,059,919 | 9.70 | 31 |
| iSign Media Solutions Inc. | 14,751,350 | 1,133,542 | 13.01 | 32 |
| Extenway Solutions Inc. | 12,299,111 | 386,420 | 31.83 | 33 |
| Sprylogics International Corp. | 14,767,761 | 292,495 | 50.49 | 34 |
| E.S.I. Environmental Sensors Inc. | 8,499,185 | 149,602 | 56.81 | 35 |
| Times Three Wireless Inc. | 2,299,554 | 34,000 | 67.63 | 36 |
| Valdor Technology International Inc. | 9,987,965 | 131,813 | 75.77 | 37 |
| POET Technologies Inc. | 71,645,102 | 388,720 | 184.31 | 38 |
| Las Vegas From Home.com Entertainment | 7,320,416 | 19,129 | 382.69 | 39 |
| Star Navigation Systems Group Ltd. | 14,387,283 | 12,036 | 1,195.35 | 40 |
| LX Ventures Inc. | 44,351,601 | 31,026 | 1,429.50 | 41 |
| Total | 656,298,273 | 386,589,000 | 1.70 |
Looking at the total sum of these companies, $656M in total market cap gives you $387M in revenue for a total P/S ratio of 1.70. That's up from October's result of 1.54 as the Venture tech companies have been gaining traction in the markets but comparing this figure to some of the most popular NASDAQ stocks, we see that Amazon has a P/S of over 2, Tesla Motors has a P/S of 10, Zynga has a P/S of over 3, and Google has a P/S of over 6. When compared to these companies the Venture tech stocks look undervalued as usually start up companies and small caps are supposed to have higher P/S metrics when compared to their larger counterparts.
Fireswirl ranks extremely well on this list at #5. Note that the four companies above FSW show poor revenue growth and mediocre margins, so the market ranks them very low in market cap relative to their revenue. With that in mind, a company like SelectCore with only a 0.10 P/S certainly has a chance to provide shareholders who have a strong will and very high risk tolerance with outstanding gains should the business turn around before it gets into severe financial difficulty.
Despite the rather low 1.70 P/S for the industry, FSW at 0.27 and ZMD at 0.62 are significantly cheaper compared to that average with ZMD needing to nearly triple in stock price and FSW needing to increase over 6 times just to come to the average. NCI ranks average with a 1.69 P/S but with such strong margins and good revenue growth, its P/S should be compared to the bigger players on the NASDAQ.
Growth
The growth metric compares trailing 12-month revenue (Revenue TTM) to the amounts reported in the four quarters prior to that (Revenue 13-24 mo). Each company is ranked by their percentage gain but the dollar amount of growth is also provided for comparison purposes.
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ZMD is third in terms of revenue growth with a 140% gain while FSW ranks 4th and NCI 5th. What stands out for FSW is the dominance in terms of its dollar figure in revenue growth in addition to the percentage. It's one thing to quadruple in revenue from 100K to 400K like PTK did. It's quite another for a company to more than double its revenue from $21M to $46M like FSW did. Out of these 41 companies revenue rose a combined total of $8M. FSW makes up $25M of that. QHR comes in second in dollar revenue growth at $5.3M. FSW grew more in revenue than what 36 of these 40 other companies have in total revenue, with many of them having larger market caps than FSW.
While a 2.1% revenue growth appears very mediocre for the industry, a lot of that has to to with the companies that rank at the top of the P/S value metric with SCG and VV accounting for a $36M decline. The growth section and the margin section expose the weakness that relying solely on the P/S ratio for stock valuation can have. A low P/S like what FSW has based off of improving margins and strong revenue growth are much superior to even lower P/S stocks like VV where margins and growth are currently going in the wrong direction.
Margin
Operating margin is used calculate the margin for each company below. Operating margin differs from the comprehensive income to shareholders which may include accounting differences for minority interest, discontinued operations, taxes or gains and losses from exchange rates. Comprehensive earnings are what shareholders ultimately get paid on and is the numerator in EPS so it cannot be ignored. However, when trying to analyze the predictive power of margin growth/shrinkage on a business, operating margins are the best to use as it excludes the non-recurring or inconsistent aspects of the business that hits the bottom line. Some companies don't split out items like foreign exchange gains/losses from their operating margin line in their financials so these numbers aren't 100% apples to apples comparison across all companies. However, it should be close enough to get a clear idea of where each company ranks relative to its peers within a couple of points to the positive or negative.
The trailing 12 month margin (Margin TTM) is compared against the margins from the four quarters previous to that so you get an idea of how each company has improved or declined. This also aids in mitigating any accounting variances between each company as presumably each company's accounting policies stay static from year to year so you can at least judge their margin in terms of direction with 100% certainty. The final ranking is based on the Margin TTM number but when looking at this list you should also consider the improvement column.
| Name | Margin 13-24 mo | Margin TTM | Improvement | Rank |
| NTG Clarity Networks Inc. | 13.4% | 35.7% | 22.3% | 1 |
| ZoomMed Inc. | -79.1% | 32.8% | 111.9% | 2 |
| Wanted Technologies Corporation | 6.9% | 21.5% | 14.6% | 3 |
| Photon Control Inc. | 10.9% | 16.6% | 5.7% | 4 |
| Avante Logixx Inc. | -3.3% | 13.4% | 16.8% | 5 |
| QHR Corporation | 8.6% | 12.7% | 4.2% | 6 |
| Route1 Inc. | 7.8% | 7.0% | -0.8% | 7 |
| Quorum Information Technologies Inc. | -0.7% | -0.3% | 0.4% | 8 |
| Nightingale Informatix Corporation | 3.2% | -0.4% | -3.6% | 9 |
| Fireswirl Technologies Inc. | -2.5% | -0.5% | 1.9% | 10 |
| TIO Networks Corp | 1.3% | -1.2% | -2.5% | 11 |
| Sangoma Technologies Corporation | 1.8% | -2.2% | -4.0% | 12 |
| VIQ Solutions Inc. | -4.1% | -4.1% | -0.1% | 13 |
| Odesia Group Inc. | 0.8% | -5.6% | -6.3% | 14 |
| Versatile Systems Inc. | -2.4% | -10.8% | -8.4% | 15 |
| TransGaming Inc. | -104.4% | -12.5% | 91.9% | 16 |
| SelectCore Ltd. | -5.7% | -13.5% | -7.8% | 17 |
| Medworxx Solutions Inc. | 5.6% | -23.8% | -29.4% | 18 |
| OPSENS Inc. | -22.8% | -31.4% | -8.6% | 19 |
| ProntoForms Corporation | -100.3% | -31.6% | 68.7% | 20 |
| Wi2Wi Corporation | -88.4% | -85.3% | 3.2% | 21 |
| Cortex Business Solutions Inc. | -187.7% | -116.7% | 71.1% | 22 |
| GINSMS Inc. | -150.2% | -143.9% | 6.3% | 23 |
| Digital Shelf Space Corp. | -113.2% | -157.3% | -44.1% | 24 |
| Enablence Technologies Inc. | -106.3% | -171.4% | -65.1% | 25 |
| ePals Corporation | -138.3% | -192.5% | -54.1% | 26 |
| Magor Corporation | -207.8% | -295.8% | -88.0% | 27 |
| The Mint Corporation | -270.3% | -320.9% | -50.6% | 28 |
| E.S.I. Environmental Sensors Inc. | -585.2% | -328.2% | 257.0% | 29 |
| Intertainment Media Inc. | -559.7% | -439.1% | 120.5% | 30 |
| iSign Media Solutions Inc. | -692.5% | -476.8% | 215.7% | 31 |
| Ackroo Inc. | -448.9% | -509.5% | -60.6% | 32 |
| Sensio Technologies Inc. | -420.1% | -615.9% | -195.8% | 33 |
| Sprylogics International Corp. | -1132.4% | -942.5% | 189.9% | 34 |
| Extenway Solutions Inc. | -1555.7% | -1016.5% | 539.2% | 35 |
| Valdor Technology International Inc. | -1318.8% | -1378.8% | -60.0% | 36 |
| POET Technologies Inc. | -3034.2% | -1844.1% | 1190.1% | 37 |
| Times Three Wireless Inc. | -555.6% | -8838.2% | -8282.6% | 38 |
| LX Ventures Inc. | -448.6% | -5255.8% | -4807.2% | 39 |
| Las Vegas From Home.com Entertainment | -731.0% | -12327.4% | -11596.4% | 40 |
| Star Navigation Systems Group Ltd. | -1664.6% | -24080.2% | -22415.6% | 41 |
ZMD and NCI clearly stand out as the top performers here. ZMD has had the biggest turnaround from -79% to 33% despite their past quarter being weak. To see the details on how it improved its performance, click here. In terms of margin, FSW showed slight improvement and is on the brink of profitability. While some people criticize FSW for having a mediocre margin, in the context of its revenue growth and P/S metric, the margin is outstanding. With a -0.5% FSW still ranks #10 which means it has a better margin than 31 other companies and improved from -2.5% in the prior four quarters.
Sustainability
Sustainability is a measure of each company's ability to maintain operations. Companies with working capital issues or large operating losses are much more likely to dilute their shares in the future or are at risk of bankruptcy. Long term debt can also be an issue for a company that is unprofitable. Listed below are each company's current assets, current liabilities, working capital and long term debt as reported from their latest financials. Keep in mind the disclaimer above regarding the accuracy of this data so you should always double check to verify it yourself before making investment decisions. Any debt or equity financing that took place after the company's financials has been mentioned in the Notes column. Those amounts have been added to the current assets (all assumed to be cash) if it is an equity financing and have been added to current assets and current liabilities or long term debt as appropriate if it was debt financing.
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When ranking each company, three tiers were used where the companies in each tier were ranked against each other within that tier. The first seven companies are the ones which earned positive operating income over the past 4 quarters, seen in the column Operating Income TTM. The next tier are companies with operating losses but have positive working capital. They are ranked in order of how many months they have left before their working capital erodes to zero, assuming the same burn rate. That is the Months WC column. As an example, Sangoma has $10.4M in working capital with an operating loss of $273K. In the unlikely event that its burn rate was to continue indefinitely, it would have about 38 years worth of working capital, or just under 458 months. The last tier of companies are those with negative working capital and operating losses where the Months CA column represents how many more months of operations they have before they run out of cash and other current assets based on current burn rates.
Admittedly, this list isn't perfect. One could certainly argue that Sangoma is more sustainable than ZoomMed which has positive working capital but also a fair amount of long term debt. But this process was the best way to determine a relatively accurate way of ranking sustainability based on burn rates and current working capital without influencing it too much with personal opinion. Beyond the numbers, there is really not much to analyze here. It is pretty straightforward to see that the companies in the top half of this list are highly likely to survive with a few of them needing to do a financing within the next year or two. The ones near the bottom of the list are in grave danger of going into bankruptcy and must finance and significantly dilute the company or sell off assets in order to continue operating.
After reviewing this analysis you can see that there are some very good opportunities to be had on the TSX Venture within the tech sector. The entire industry is cheap when compared to the tech stocks south of the border. While many of them are cheap because they face severe operating or financial issues, the ones that make the top of this list and are strong in the majority of the four aspects of value, growth, profitability and sustainability without any glaring weaknesses clearly offer significant opportunities for future stock price growth that far surpasses many other stocks out there. TSX Tech News And Analysis remains very bullish on its three picks that made this list - FSW, NCI and ZMD - but any stock that is near the top of this ranking is worthy of a look by investors who wish to add some microcap tech exposure to their portfolio, especially considering how well several others that made the top ten like PHO, WAN and QHR have fared in the past two months.
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