stock price to sales ratio in conjunction with EBITDA momentum identify Sangoma
Technologies (TSXV: STC) and AirIQ (TSXV: IQ) as great stock buys.
The Investorfile blog has a
laundry list of measures that provide the framework for our investment process
which help identify our small cap value Top Ideas. Although, together, two
items rank very high on our list of value indicators: a low stock price to
sales ratio and EBITDA momentum. If a public company exhibits both of these
simultaneously, the stock becomes a great investment opportunity.
calculates the price-to-sales ratio (P/S) by taking a public company's market capitalization (the
number of outstanding shares multiplied by the share price) then divide it by
the company's annual revenue run rate going forward. If the P/S ratio equals
one (or less), the Company’s total market value is equivalent to only one year
of its total sales. Companies that have some recurring sales streams and a diversified customer base are high quality.
of Investorfile’s favourite indicators for a small cap company’s share price
appreciation potential is EBITDA momentum. When EBITDA (earnings
before interest, taxes, depreciation and amortization) is growing and has momentum,
the company’s operations are generally thriving.
An even better indicator is
which is a measurement of a company’s operating profitability as a percentage
of its total revenue. When EBITDA margins are on the rise, it implies that a
company’s revenues are growing at a faster rate than its expenses.
is a measurement of a company's operating profitability as a percentage of its
total revenue, we feel it provides growth investors with a clearer view of a company's
future financial prospects. The higher the EBITDA margin, the smaller a
relation to total revenue, thus increasing its bottom line and leading to
stronger cash flow.
this blog post, we took a survey of our Top Ideas to identify which companies
are trading at a P/S ratio (based on their current revenue run rate) equal to
one or less in conjunction with reporting EBITDA momentum over the past several
quarters. From this exercise we identify two of Investorfile’s stock picks:
Sangoma Technologies (TSXV: STC – C$1.43)
P/S ratio: 0.81 (based on C$120 million annual revenue run rate)
Recurring sale streams: YES
EBITDA momentum: YES
See: Sangoma blog posts
(TSXV: IQ – C$0.185)
P/S ratio: 0.79 (based on C$7 million annual revenue run rate)
Recurring sales streams: YES
EBITDA momentum: YES
See: AirIQ blog posts
Based on their current P/S ratios (and the quality of revenue streams) coupled
with the EBITDA momentum reported at Sangoma Technologies and AirIQ,we
believe there is strong stock price appreciation potential in the near term for
both of these Investorfile stock picks.
Both companies maintain strong balance sheets.
Author's ownership disclosure -YES: STC, IQ
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 AirIQ Inc.,
and Sangoma Technologies Corp. for the preparation or distribution of this
The author of this article has acquired and may trade shares of AirIQ Inc., and
Sangoma Technologies Corp. through open market transactions and for investment