TOP IDEAS - NEW: Questor Technology Inc. (TSXV: QST) is growing, profitable and even debt-free. All the right seeds to sprout this green company for small cap value investors.
I never thought I would ever recommend a clean-tech small cap company as an investment idea. Green technology companies are usually run by management that hardly ever executes on a business plan that produces profits. Most clean-tech small caps continue to dilute their current shareholders while chasing a big dream.
Wake up small cap clean-tech investors. Here is a refreshing dose of reality!
Questor Technology Inc. (TSXV: QST -$0.38) makes money. This clean-tech small cap had a strong and profitable start to 2012. In the first quarter, Questor Technology earned $487 thousand ($0.02 per share) on revenues of $2.23 million. The Company earned $1.19 million or $0.05 per share on revenues of $6.1 million for the year in 2011. In 2010, Questor Technology was profitable too.
Why is this clean-tech company profitable?
First, the Company's management has executed on a business plan to turn profitable on a mere $4 to $5 million in annual sales. Second, they produce a green technology that is in demand, earning strong margins as revenues rise.
Headquartered in Calgary, Alberta, Questor Technology is focused on clean air technologies. The Company's main business is the design and manufacturing of high efficiency waste gas incinerators for sale or for use on a rental basis. Questor's proprietary incinerator technology destroys noxious or toxic hydrocarbon gases. The Company's current customers are primarily in the oil and gas industry, and deploy Questor's incinerators for regulatory compliance, environmental protection and to reduce operating costs at their oil and gas fields. This waste gas incinerator technology is also applicable to other industries such as landfills, water and sewage treatment, tire recycling and agriculture.
The marketplace is recognizing Questor's clean air incinerator technology as best-in-class. No more so than in the USA, where annual sales to this region have increased by $3.7 million dollars between 2010 and 2011, comprising 61% of its total revenues last year. In a recent news release, the Company's CEO stated that new emission standards for hazardous air pollutants introduced in April 2012 by the Environmental Protection Agency (EPA) in the United States has heightened demand for its incineration technology.
The new EPA standards and customer activity from shale gas developments in the US are fuelling Questor's growth from incinerator rentals and sales. Other market opportunities for growth for clean air incineration solutions are from countries that have begun to disallow open flaring for oil and gas producers.
As we look forward to the continued growth, take comfort clean-tech investors: Questor Technology also has a very strong balance sheet. The Company is free of any debt and has $6 million of working capital, of which $3.89 million is held in cash.
But how about making an investment in a Company with a strong balance sheet and cheap shares? Yes, that is Questor Technology. The stock is currently trading at a valuation of approximately 2.3x EV/EBITDA on 12-month trailing basis.
Therefore, for value-driven small cap investors we suggest that shares of Questor Technology should be accumulated to a high of $0.65 from its current trading level of about $0.38, which is equivalent to about 5x EV/EBITDA on historical results. If we assume growth, shares in Questor Technology could be worth more than our $0.65 target.
Other pluses: Senior management and directors of Questor Technology combined own about 33% of the Company's approximately 24.8 million shares outstanding.
High management ownership and a small share float are usually good for shareholders.
Questor Technology website www.questortech.com
Author Disclosure: TSXV: QST- Long
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