KeyStone’s Stock Talk Podcast – Pioneering Technology Corp. (PTE:TSX-V), Polaris Materials Corporation (PLS:TSX), & TearLab Corporation (TLB:TSX)
We have another busy show for you this week. In our Your Stock, Our Take segment we take a question from a listener about, Pioneering Technology Corp. (PTE:TSX-V), a profitable high growth micro-cap which has essentially created its own category with its consumer cooking fire prevention technologies – the company reported a record quarterly results this week, based on the numbers, is it a BUY, SELL or HOLD? Our star is Polaris Materials Corporation (PLS:TSX), a BC-based construction aggregate provider which saw its share price rocket 191% this week after its received a friendly takeover bid. Finally, our dog of the week is eye care health related business, TearLab Corporation (TLB:TSX). The stock is down over 47% this month and 55% since we called its shares “uninvestable” in April of this year at $3.79 when reviewing it for a listener in our YSOT Segment.
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Now, let’s dig into the show.
Aaron is hard on a special report alongside myself and an a new report, so I dismissed him for this show.
Your Stock Our Take
We have a question from Barry in Halifax.
Pioneering Technology Corp. (PTE:TSX-V) which trades at $1.14 with a market cap in the range of $70 million.
Pioneering Technology Corporation is an “Energy Smart” technology and consumer goods company and is North America’s leader in cooking fire prevention technologies. The company’s core business is focused on cooking fire prevention but Pioneering’s product innovations also help end users save energy and deliver a return on investment. Pioneering’s business model is to market/sell its proprietary technologies and/or products directly to end customers, through third party distribution channel partnerships or licensing/supplying technologies, product components or end products to original equipment manufacturers (“OEMs”).
The company’s two current flagship products Safe-T-element® and SmartBurnerTM utilize patented “temperature limiting controlTM” (TLC) technology which was recently recognized by the fire prevention community as the only technology able to help prevent cooking fires.
The stock is up 14% year-to-date and over 120% over the past 52-weeks.
What is driving the share price gains?
Revenue for the company’s third quarter reported this week was $2,567,510 up approximately 58% versus $1,623,759 for the same period year-ago. The revenue growth was driven by growing awareness of the SmartBurnerTM product combined with sales from the Safe-T-elementTM and Safe-T-sensorTM products. SmartBurnerTM sales continued to grow behind increased awareness of the product driven by marketing and increasing distributor exposure of the product to end users.
Comprehensive net income is reported as a profit of $1,163,675 ($0.03 per share) due to strong quarterly business performance plus a favourable adjustment in the fair value movement derivative liability of $272,683 related to warrants (a non-cash item) and a positive income tax recovery amount of $380,000. Notably, these are one-time benefits however and are not related to operations. In fact, they account for 56% of the reported net income.
Adjusted EBITDA was $374,512 down from $499,014 in the same period year-ago. The decline was driven primarily by an increase in sales and marketing spending required to build awareness for the cooking fire problem and to accelerate growth with Pioneering’s distribution partners and an increase in administration costs resulting from additional professional fees.
Pioneering is a tremendous micro-cap success story and has basically created a product category and is saving lives – they should be applauded for that. The company has exceeded our expectations since we included it over a year ago in our Breakthrough Report and management has used the share price strength to raise capital and pay off debt – giving the company a strong cash position and balance sheet to help grow operations and develop new products.
The revenue growth is great and the company was smartly profitable in the last quarter. It is prudent to point out that over 50% of the company’s income in the quarter was not operationally related (one-time). As a result, fundamentally, the stock is not cheap at present. Even if we annualize the company’s record earnings from the last quarter the stock is trading a PE multiple of 30. This is sustainable if the growth continues at 30% plus over the next number of years, but it gives the company a good deal of execution risk.
We see it as a great success story, but the stock is priced too rich for our fundamental based analysis at present.
$0.008 per share was an income tax recovery in Q3. And $0.013 per share of the
61,796,531 shares out
STAR – Polaris Materials Corporation (PLS:TSX)
Shares jumped 191% this week – that will make a star out of any stock – after its announced a friendly takeover bid.
Polaris Materials Corporation, headquartered in Vancouver, British Columbia, is a supplier of high quality construction aggregates to major coastal markets in California and British Columbia. The company has developed an integrated logistical chain of mineral resources, receiving port terminals and cost effective, contracted shipping that allows it to meet the need for replacement aggregate sources in markets where local resources are depleting and marine imported aggregates offer an increasingly viable alternative.
On Monday of this week, Vulcan Materials Company (NYSE:VMC), the nation’s largest producer of construction aggregates, announced that it has reached a definitive agreement to acquire Polaris Materials Corporation .
The cash purchase price represents a 191% premium to Polaris’ closing share price of C$0.96 on August 25, 2017 and a 194% premium to the volume weighted average price of Polaris’ shares over the last 10 trading days.
After receiving the interest from Vulcan, Polaris’ Board of Directors formed a special committee consisting of the company’s independent directors, to supervise the process undertaken and negotiate and review the transaction. The Special Committee and the Board of Directors have unanimously recommended that shareholders, optionholders and deferred unit holders of Polaris vote in favour of the transaction.
Polaris is permitted to terminate the Arrangement Agreement in certain circumstances, including to allow the Board of Directors to accept a superior proposal subject to certain conditions, including Vulcan’s “right to match” and the payment of a termination fee of C$10 million. Given the premium and valuation, we do not expect a superior bid, but stranger things have happened.
If I owned shares, I would be tendering to this offer.
Polaris appears to have a strong resource, but has not been profitable this year, was not profitable last year and was only marginally profitable in 2015. The takeover bid is at a large premium to annual cash flows historically. The company has an accumulated deficit historically of over $133 million.
DOG – TearLab Corporation (TLB:TSX)
TearLab is actually a stock which we reviewed for a listener earlier this year in our Your Stock Our Take segment in April of 2017 with the stock at $3.79. Our take at the time was that the stock was “uninvestable” and we are not surprised to see its shares lower today to the $1.69 range.
TearLab Corporation (TLB:TSX)
The company is a diagnostic company based in San Diego, California. TearLab has commercialized a proprietary tear testing platform, the TearLab® Osmolarity System that enables eye care practitioners to test for highly sensitive and specific biomarkers using nanoliters of tear film at the point-of-care. The company’s first product measures tear film osmolarity for the diagnosis of Dry Eye Disease or DED.
Revenue has grown from roughly $4 million in 2012 to $28 million this past year – which is a positive, but the company is not even close to profitability losing $19.9 million on that $28 million mark in sales. Perhaps it has good technology, perhaps the company will continue to grow revenues at an above average rate, but at some point TearLab has to demonstrate it can actually make money with its great tech.
To date, all TearLab has shown is that it is a great destroyer of capital. In fact, the company has historical accumulated deficit of $521 million. This, for a company which the market currently values at just under $8 million, is an astonishing deficit.
Our Take: Tearlab is not devoid of investment merit. In fact, the commercial version of its next-generation in-vitro diagnostics testing platform, the TearLab Discovery™ System, was just cleared for sale in the European Union (EU) and European Free Trade Association (EFTA) member countries. Good news for the future – however, we are not surprised to TearLab down over 47% this month and 55% since we called its shares uninvestable in April of this year at $3.79. The stock is experiencing troubles maintaining its NASDAQ listing given the price drop. It reported minimal revenue growth in the last quarter and a loss of $3.8 million.
As a technology grab, Tearlab may be a takeover target for a larger player, but we do not buy shares in a company on that basis.
The sharp declines in the last month make Tearlab our DOG of the Week.