TOP IDEAS: With the Company demonstrating consistent performance, Avante Logixx’s (TSXV: XX) stock valuation is trending upward to reflect its $90 million plus revenue base.

Investorfile's share price accumulation target of $0.40 (pre-consolidation) for Avante Logixx Inc. was reached on January 7, 2014. For the record, we do not revise share price targets for our Investorfile Top Ideas - Small Cap Value Stocks. We have positioned our blog to be one of the first providers of a pragmatic perspective of a small cap company stock's potential worth, where there may be uncovered value that has been largely overlooked by the investment community.

We did predict the share price appreciation potential for Avante Logixx just over 2 months ago. (See: Exceptional value for Investorfile stock pick is emerging). In that blog post we identified that the Company’s shares were trading at a very low price-to-sales (P/S) ratio and, when coupled with growth in its EBITDA, the stock price would begin its upward run.

Well, the stock is heading up now and that means bad news and good news.

The bad news is, if you did not buy the stock since our last blog post, the shares are up 28%. The good news is that we believe this stock price has at least another 135% higher to go in the near term (less than 12-months) and that only marks the beginning of this story.

Based in Toronto, Avante Logixx Inc. (TSXV: XX – C$1.28) describes itself as a leading provider of technology-enabled security services. The Company acquire, manage and build industry-leading security businesses by offering technology-enabled security solutions and a one-stop shop for security-conscious clients whose security is important and necessary.

Through acquisitions and some divestitures, Avante Logixx has evolved greatly since becoming one of Investorfile’s Top Ideas. Today, the Company has two major platforms across six business segments that offer specialized security services, providing a strong foundation for future growth.

The larger platform is Logixx Security Inc., a full-service, one-stop shop security solutions provider for large, national multi-site enterprise customers where security is "mission critical" to success. Offerings to such enterprises include protective services, electronic security, cyber security, monitoring and managed services. The Company says it has a diversified base of contracts with enterprise customers that are high in value and generate multi-year contractual revenue. Currently, Logixx Security comprises about 80% of Avante Logixx’s revenue base.

The remaining 20% of the Company’s revenue base is derived from Avante Security. Avante Security is a full-service, one-stop shop security solutions provider for ultra-high net worth residential clients for their homes, most of which are located in Toronto and Muskoka, Ontario. Revenues generated by Avante Security are mostly recurring on a monthly basis for monitoring services, plus security hardware installations.

To scale in size, Avante Logixx has made several acquisitions, the last of which was a year ago. Not unlike other growth companies which undertake a series of acquisitions within a short period of time, Avante Logixx sustained losses from the added expenses incurred during the integration period. During this acquisition phase, the Company also invested in people, processes and technology to set a strong foundation for future revenue growth.

Now the benefits of the Company’s investments and scale are showing results. As such Avante Logixx’s financials have crossed the inflection point, whereby operating leverage has materialized, which has strengthened EBITDA and EBITDA margins, also leading to strong cash generation.

The inflection point is most evident in Avante Logixx’s recently reported fiscal Q2 fiscal 2021 financials. The Company generated record quarterly revenues from continuing operations of C$23.6 million for the three months ended Sept. 30, 2020. This represents sequential growth of about 30% and 131% year-over-year growth. About 80% of the total revenues generated in this quarter are either multi-year contractual or monthly recurring in nature. Avante Logixx also generated adjusted EBITDA from continuing operations during Q2 2021 of C$1.7 million or 7.3% of revenues, which is a sequential improvement of C$1.1 million or improvement of C$1.2 million from the prior year. This is a significant turnaround in profitability and is expected to continue.

Despite the Company’s financial improvement across all metrics, the stock price does not nearly reflect this yet. That said there is very significant upside potential for small cap investors who buy the stock at this time. Because the Company is now demonstrating consistent performance on scale with strong organic growth, the first level valuation adjustment should be to the stock’s P/S ratio, which currently trades less than 40% of annualized revenues based on Q2 results.

We are of the opinion that Avante Logixx’s stock price will trend upward to reflect a P/S valuation ratio of at least one time. Based on the Company’s current 12-month revenue run-rate of about C$90 million, coupled with its fully diluted share count of approximately 28.2 million, we value Avante’s stock price at over C$3.00 per share. We also note that a share price of C$3.00 only represents the ground floor for further price appreciation, tied to higher trading multiples plus future profitability and growth.

At Investorfile, we feel now is the time to buy this stock for small cap investors, ahead of the rest of the investment community, to secure the biggest upside potential.

Admittedly, in prior posts, the Investorfile blog has been bullish on Avante Logixx’s potential when the stock was trading near current price levels previously in the last 12 to 18 months. We may have been a little premature in our enthusiasm, which is okay. This time around, the Company’s financial performance and scale is crystallizing as planned and then some.

Management and Board stock ownership is steadily increasing in Avante, now at about 16% of the total shares outstanding. The Company has in place share ownership guidelines, and compensation is linked to performance.

Avante Logixx has about 21.2 million shares outstanding basic.

Company’s website: https://www.avantelogixx.com/investors/

Avante Logixx's Q2 Investor Presentation link: 
https://www.avantelogixx.com/file/2020/11/Q2-F21-Investor-Presentation-FINAL.pdf

Author Ownership Disclosure: TSXV: XX - Yes

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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.com is not engaged in an investor relations agreement with Avante Logixx Inc. nor has it received any compensation from Avante Logixx Inc. for the preparation or distribution of this article.

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