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Sep
27
Exceptional value for an Investorfile Top Idea is emerging
Posted by: Gerry Wimmer
9/27/2020
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A low stock price-to-sales ratio, in conjunction with EBITDA momentum, is a precursor that Avante Logixx Inc. (TSXV: XX) could be a great buy today.

It was almost exactly one year ago in an Investorfile blog post that we identified Sangoma Technologies (TSXV: STC) and AirIQ (TSXV: IQ) as strong buys. (See: Two strong indicators point to exceptional value for Investorfile stock picks.)

Why?

At the time both stocks which are on Investorfile's list of Top Ideas also ranked very high on our list of value indicators because they exhibited a low stock price-to-sales ratio and EBITDA momentum. If a growth company exhibits both of these simultaneously, we feel the stock becomes a timely investment opportunity with exceptional value.

Since that blog post last year, Sangoma Technologies and AirIQ shares are up 61% and 92% in value respectively.

As said in our prior post, Investorfile 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 divides it by the company's annual revenue run rate going forward. If the P/S ratio equals less than one, the Company’s total market value is equivalent to less than one year of its total sales generated. Companies with high quality revenue streams have recurring sales from a diversified customer base, which is more predictable.

One of Investorfile’s favourite indicators for a small cap company’s share price appreciation potential is EBITDA momentum. When adjusted, EBITDA is consistently growing the Company’s operations are thriving.

An even better indicator is EBITDA "margin" momentum, which is a measurement of a company’s operating profitability as a percentage of its total revenue. When adjusted EBITDA margins are on the rise, it implies that a company’s revenues are growing at a faster rate than its expenses.

Because EBITDA margin 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 company’s operating expenses in relation to total revenue, thus increasing its bottom line and leading to stronger cash flow.

For this blog post, we identified a company on our list of Top Ideas with a stock price that is currently trading at a P/S ratio (based on its current revenue run rate) which is significantly less than one. This same company is also beginning to report EBITDA momentum, which is forecasted to continue.

Investorfile pick:

Avante Logixx (TSXV: XX – C$1.00)
P/S ratio: 0.28 (based on C$75 million annual revenue run rate)
Recurring Revenue: 80% recurring monthly or multiyear contracted
EBITDA momentum: YES

Based on the fact that Avante Logixx’s shares currently trading at a very low P/S ratio of 0.28 and has a predictable revenue model, when coupled with the EBITDA momentum reported, we believe there is strong stock price appreciation potential from its current trading levels.

As such, if Avante Logixx’s stock price follows the same upward trend as last year's picks based on our same value indicators, investors who purchase shares today should be rewarded handsomely.

Author's ownership disclosure -YES:XX


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 AirIQ Inc., Sangoma Technologies Corp. and Avante Logixx Inc, for the preparation or distribution of this article.

The author of this article has acquired and may trade shares of AirIQ Inc., Sangoma Technologies Corp. and Avante Logixx Inc. through open market transactions and for investment purposes only.

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Hi Gerry, Your philosophy is focused on principles that have been shown to produce above average results over time and your record has clearly proven that. Congratulations on a great blog and thank you for the hard work that you do in sharing and updating your ideas; it is much appreciated.