2018 is turning out to be a down year overall for North American equities. While the S&P 500 and NASDAQ just moved into negative territory year-to-date, the S&P/TSX Composite index is down 7% on the year and the S&P/TSX Small Cap Index is down 15% year-to-date. Given that we are headed into tax loss selling season, the losses may extend near-term, particular for the more volatile growth stock segment.
But, contrary to popular opinion, investors make their money in down markets, not up markets. It is the research we conduct today and the stocks we buy when others are selling the produce the best long-term gains when the market inevitably upticks once again.
That is why we just conducted a full review of each and every balance sheet and latest MD&A (management discussion and analysis documents) on every stock in Canada for KeyStone’s Cash Rich, Profitable Canadian Growth Stock Special Report.
Each year KeyStone analysts manually review over 3,500 Canadian stocks, narrow the field to 65+ profitable, cash rich growth stocks and make 3-5 individual BUY recommendations. The report is over 150 pages packed with summary reports on all 65 cash rich, profitable small-caps, full statistical analysis and individual BUY/SELL/HOLD recommendations on select stocks.
Companies with strong balance sheets including zero or manageable debt, solid cash positions, good working capital, and good cash generation can withstand downturns and prosper in market upturns. These Cash Rich stocks often positioned to outperform long-term. This outperformance can come from good to premium multiples (creating share price gains) or in the case of approximately 30 companies over the last 7 years from our Cash Rich Reports, premium takeover bids. Both lead to superior returns for investors. Again, the theme with these companies has been strong balance sheets and strong cash flow. The type of pristine balance sheet that can withstand and even profit from a downturn (via strategic expansion through purchase of distressed assets). We believe companies that hold this profile will continue to attract more attention from individual investors and as potential acquisition targets in 2019 and beyond.
Included in the upcoming report is XPEL Technologies Corp. (DAP.U:TSX), a company we had been monitoring for 4-years before recommending it in September of 2017 in the US$1.42 range and then added the company to our Focus BUY Portfolio in March of 2018 as a new BUY recommendation at US$1.59. Since this time, the stock has been one of the single best performing non-penny stocks in Canada rising over 350% in weak general market conditions.
The great thing about the strong performance is that it has been entirely justified by the growth in the underlying financials. In fact, the growth in this simple business has been so strong one can argue the stock is still relatively cheap today.
XPEL Inc. (DAP.U:TSX)
Industry: Auto Tech Specialty Product Marketer/Distributo
Recommended: September 2017
Recommendation Price: US$1.42
Current Price: US$6.30
Shares Outstanding: 27,612,597
Fully Diluted: 27,612,597
XPEL Inc. is based in San Antonio, Texas and manufactures, sells and distributes, and installs after-market automotive products, including automotive paint protection film, headlight protection film, automotive window films and other related products. In the United States, Canada and parts of Europe, the company operates primarily by selling a complete turn-key solution directly to independent installers and new car dealerships which includes XPEL protection films, installation training, access to XPEL’s proprietary design software, marketing sup- port and lead generation. Additionally, the company operates six company-owned installation centers in the United States as well as one installation center each in the United Kingdom and the Netherlands that serve wholesale and/or retail customers in their respective markets. In other parts of the world, including China (32% of Q2 sales) which grew rapidly in 2017 and the first half of 2018, XPEL operates primarily through third party distributors, who operate under agreement with the company to develop a market or a region under the company’s supervision and direction. The company operates through 100% owned subsidiaries in Canada, the Netherlands and Mexico and through an 85% owned subsidiary in the United Kingdom.
Record Q3 2018 Results
XPEL Reported Record Third Quarter Revenue Growth of 64.3% to $29.3 Million and EPS of $0.08
- Revenues increased 64.3% to $29.3 million compared to third quarter 2017.
- Gross margin improved to 30.1% compared to 23.8% in third quarter 2017.
- Earnings per share of $0.08 compared to $0.02 per share in third quarter 2017.
Revenues for the quarter grew 64.3% to $29.3 million. Gross profit as a percentage of sales was 30.1% as compared to 23.8% in the prior year quarter. Selling, general and administrative expenses increased to $5.9 million compared to $3.6 million in the prior year quarter but were flat as a percentage of sales at 19.9%. Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) increased $2.2 million to $3.4 million compared to $1.2 million in the prior year quarter. Net income was $2.2 million or $0.08 per basic and diluted share, compared to net income of $0.4 million or $0.02 per basic and diluted share in the prior year quarter.
XPEL is an excellent example of the type of profitable, under-the-radar growth stock we specialize in uncovering for our clients.
The stock has literally no institutional coverage when KeyStone recommended it just over a year ago at US$1.42. In other words, you would not have found out about this from your big bank broker or advisor or through any other research firm in Canada.
