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Apr
9
Cash-rich small caps offer some unseen value
Posted by: Gerry Wimmer
4/9/2017
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Investorfile’s Top Ideas with plenty of cash to expand include stocks that have a business value that is mispriced by the market.

Cash is rarely fully valued in the price of small cap stock. But it can create a great deal of shareholder value when the cash is deployed or it can provide a safety net when needed most.

A net cash balance (cash less bank debt) is an insurance policy against a small cap company's ability to financially weather unexpected and adverse business conditions. But, large cash holdings can also be used to accelerate growth to fund a major expansion program and make acquisitions. These are major catalysts for valuations of small cap investments.

Strangely, we often we find that small cap companies with large cash holdings have an overall value that is largely mispriced by the market. As such, the percentage of cash per share makes up a significant portion of the small caps stock’s total market capitalization (share price x outstanding shares).

For this blog post we looked at all of our active Top Ideas to rank the top five stocks with big cash positions. If a significant portion of the stock’s market capitalization is made up of cash this helped to identify if the small cap company’s business operations are undervalued by the market.

  1. Titan Logixx (TSXV: TLA - C$0.60)
    Net cash-per-share: C$0.50 - 83% of market capitalization
    Market value of business: C$2.8 million
    Last 12-month revenues: C$3.2 million
    Current operations: Cash-flow break-even
     
  2. Ergoresearch (TSXV: ERG - C$0.285)
    Net cash-per-share: C$0.11 – 38% of market capitalization
    Market value of business: C$12.6 million
    Last 12-month revenues: C$14.2 million
    Current operations: Cash-flow positive and profitable

  3. Caldwell Partners International (TSX: CWL – C$1.14)
    Net cash-per-share: C$0.37 – 32% of market capitalization
    Market value of business: C$15.7 million
    Last 12-month revenues: C$56 million
    Current operations: Cash-flow positive and profitable

  4. Questor Technology (TSXV: QST - C$0.75)
    Net cash-per-share: C$0.25 – 33% of market capitalization
    Market value of business: C$13.2 million
    Last 12-month revenues: C$ 7.1 million
    Current operations: Cash-flow positive

  5. Intrinsyc Technologies (TSX: ITC – C$2.63)
    Net cash-per-share: C$0.48 – 18% of market cap
    Market value of business: C$45.3 million
    Last 12-month revenues: C$ 23.1 million
    Current operations: Cash-flow positive and profitable

Each of the above-listed Top Ideas companies holds a significant cash position which could be deployed to finance business growth. If you subtract the cash amount from the total market capitalization calculation, several of the stocks have a market business value that is less than their total revenues generated over the last 12 months. This is the unseen value.

Author's ownership disclosure -YES: ITC, CWL, TLA, QST, ERG.


Read Disclaimer:

This article is for informational purposes only. This article is based on the author's independent analysis and judgment and does not guarantee the information's accuracy or completeness. The information contained in this article is subject to change without notice, and the author assumes no responsibility to update the information contained in this article. The information contained within this article should not be construed as offering of investment advice. Those seeking direct investment advice, should consult a qualified, registered, investment professional. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock.

Investorfile is not engaged in an investor relations agreement with Questor Technology Inc., Caldwell Partners International Inc., Titan Logix Corp., Intrinsyc Technologies Corp., and Ergoresearch Ltd. nor has it received any compensation from Questor Technology Inc., Caldwell Partners International Inc., Titan Logix Corp., Intrinsyc Technologies Corp., and Ergoresearch Ltd. for the preparation or distribution of this article.

The author of this article has acquired and may trade shares of Questor Technology Inc., Caldwell Partners International Inc., Titan Logix Corp., Intrinsyc Technologies Corp., and Ergoresearch Ltd. through open market transactions and for investment purposes only.

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Gerry: Thanks for small cap stock suggestions over the past 5-years. Your record is very impressive and your analysis has been excellent over the years. I think small investors (and fund managers) should pay much more attention to your work. I look forward reading your blog over the next 5-years!