Recurring
revenues, strong gross margins and cash rank high for Investorfile Top Ideas
Recurring revenue.
Recurring revenue is the portion of a company's revenue that is highly likely
to continue in the future. A revenue base that is predictable, stable and can
be counted on with a high degree of certainty is a very desirable quality for
small cap investments. Small companies are very vulnerable to unforeseeable
events. A major customer loss or big project delays can have a material impact
on a small company's profitably and stock valuation. A recurring revenue base
generated from multiple customers offers small cap investors the visibility
into the future revenue of the company which helps minimizes risk.
Investorfile
Top Ideas - Top 3 in recurring revenue:
1.
WANTED Technologies (TSXV: WAN) - WANTED's business model is largely focused on
building its recurring revenue base through annual subscriptions of its leading
employment market intelligence platform, WANTED Analytics. Recurring revenue
represents approximately 89% of total revenues.
2.
Quorum Information Technologies (TSXV: QIS) - Quorum is growing critical mass
of installed dealerships that supply a recurring revenue stream by paying
recurring monthly support and service fees for management software. Recurring
revenue represents approximately 82% of total revenues.
3.
RDM Corporation (TSX: RC) - RDM has built a growth business based on recurring
revenues from payment processing services through its cloud-based Image &
Transaction Management System (ITMS) service platform. Recurring revenue
represents approximately 55% of total revenues.
Notable
other: Avante Logixx (TSXV: XX) - 38% of total revenues are recurring.
Gross margin percentage.
The gross margin percentage for a company represents the percent of total sales
revenue that it retains after incurring the direct costs associated with
producing its goods and services sold.
The higher the percentage, the more it retains on each dollar of sales
to service its other costs and obligations. Small cap companies with high gross
margin businesses can usually leverage their sales growth into higher profit
growth which is desirable for investors. Generally gross margins percentages
should not be compared with companies operating in different industries.
Investorfile
Top Ideas - Top 3 gross margin percentages:
1.
WANTED Technologies (TSXV: WAN) - Gross margin percentages are very high at 97%
for this cloud-based software company. The cost of sales is mainly composed of
salaries associated with the delivery of WANTED's products and services and
customer support.
2.
Sangoma Technologies (TSXV: STC) - Depending on product mix of Voice over
Internet Protocol (VoIP) telephony products sold within a particular reporting
gross margin percentage at Sangoma average about 66%.
3.
RDM Corporation (TSX: RDM) - Gross margins at RDM average about 59% generated
from a mix of optical scanner hardware sales and payment processing transaction
services revenue.
Notable
others: Quorum Information Technologies (TSXV: QIS) gross margin percentage of
58%; Titan Logix (TSXV: TLA) gross margin percentage of 53%; IWG technologies (TSXV: IWG) gross margin
percentage of 52%; Questor Technology (TSXV: QST) gross margin percentage of
48%.
Net cash. A net cash balance
(cash less bank debt) is an insurance policy against a small cap company's
ability to financially weather unexpected and adverse business conditions. But
large net cash holdings can also be used for acquisitions or a new dividend
payout. These are major catalysts for valuations of small cap investments. Cash
is rarely fully valued in the price of small cap stock. But it can create a lot
of shareholder value when cash is deployed wisely.
Investorfile
Top Ideas - Top 3 in net cash holdings:
1.
RDM Corporation (TSX: RC) - Last reported $23 million US in net cash or $1.06
US per share.
2.
Titan Logix (TSXV: TLA) - Last reported $12.7 million in net cash or $0.50 per
share
3.
Intrinsyc Technologies (TSX: ITC) Last reported $8.8 million US in net cash
and cash equivalents or $0.43 US per share
Other
notables: Caldwell
Partners International (TSX: CWL) $9 million in net cash; WANTED Technologies
(TSXV: WAN) $6.3 million in net cash; Questor Technologies (TSXV: QST) $5.5
million in net cash.
See:
Top Ideas
Author
Ownership Disclosure:
TSX:
CWL – Yes; TSX: RC – Yes; TSX: ITC – Yes; TSXV: XX – Yes; TSXV: IWG – Yes;
TSXV: QST – Yes; TSXV: QIS – Yes; TSXV: TLA – Yes; TSXV: STC – Yes; TSXV: WAN –
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. |
