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.)
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
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.
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
relation to total revenue, thus increasing its bottom
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.
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
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.