Stock Talk Podcast Episode 156 Show Notes

KeyStone’s Stock Talk Podcast Episode 156

This week, in our ask us anything segment we answer a question on Chinese equities.  We also have 3 YSOT segments for your listening pleasure.

Our first YSOT this week came in from a listener on PyroGenesis Canada Inc. (PYR:TSX), which designs, develops, manufactures, and commercializes advanced plasma processes and sustainable solutions to reduce greenhouse gases (GHG). The stock which surged to just under $12 in February has dropped roughly 50% from its highs and the listener asks if it offers better value today.

Our second YSOT is on PARTS iD Inc. (ID:NYSE) – the owner and operator of, among other verticals, “CARiD.com,” a leading digital commerce platform for the automotive aftermarket. A listener asks if this company, which went public in late 2020 via a SPAC, is a potential buying opportunity.

Our third and final YSOT is on Intuit Inc. (INTU:NASDAQ), the global technology platform that makes TurboTax, QuickBooks, Mint, and Credit Karma, and the recently acquire Mailchimp. The listener asks us if there is still upside for this high quality, software service giant.

Question from a listener:

We found that we could not even trust the accountants to be able to do the basic checks – including confirming cash in the bank. We have advised against investing in North American Listed China-based stocks.

If we cannot trust the numbers from the big 4 accounting firms, we cannot recommend the stock.

It is unfortunate, as there is likely some good companies that get tarnished. Also, some great ideas and innovations will not get funded, which is a shame.

But we also need to mitigate risk in our strategy, and we find too much risk investing in these North American Listed China-based stocks.

Andy via YouTube

“Thanks for the analysis, guys. Was previously in Brookfield Renewables but sold out when it spiked. Looking to buy in. I was wondering if you guys could do an analysis on Pyrogenesis. It’s a plasma technology company that is doing a lot of exciting stuff. Quite a high valuation though but would love a second opinion.”

PyroGenesis Canada Inc. (PYR:TSX)

Price: $5.33

Market Cap: $894.171 Million

What Does Equitable Do?

Designs develop, manufacture, and commercializes advanced plasma processes and sustainable solutions which reduce greenhouse gases (GHG), and are economically attractive alternatives to conventional processes. PyroGenesis has created a proprietary, patented and advanced plasma technologies that are currently being vetted and adopted by industry leaders in four large markets: iron ore pelletization, aluminum, waste management, and additive manufacturing.

Very interesting tech in the business – too much to get into in a quick hit like this.

Q2 Results:

Record revenues of  $8.3 million up 289% from last year and a 32% increase from Q1,

The company actually reported a massive loss of roughly $20 million due to changes in fair market value of strategic investments and share-based compensation – adjusting these out the company was profitable from operations, with about $850,000 in operating income. But that only equates to roughly half a cent per share.

$0.005 – half a cent per share.

166,289,320

Backlog of signed contracts, at August 16, 2021, of $32.1 million.

Conclusion

On the positive side – We have interviewed PyroGenesis management and found them to be knowledgeable and confident in the growth prospects in their 4 core markets. There appears to be a growth path ahead for the company

Sales are increasing:

PyroGenesis has a strong balance sheet with $18 million in cash and no significant debt.

Strategic investment of 27,830,100 common shares (plus some warrants) in TSX-Venture listed HPQ-Silicon Resources Inc. (HPQ:TSX-V) – which at current market prices of $0.71 are worth roughly $19.75 million – this can fluctuate significantly.

And the backlog is solid. On the negative side – the company has only just broken into positive cash flow (approximately $1.2 million in the last quarter) and despite the company’s shares losing 50% from its February highs, it still boasts a $900 million market cap. This is high given current cash flow and factors in significant future success. Current valuations are a speculative bet on management executing in new markets which are uncertain. It is a classic higher risk, for potentially high reward situation. This may intrigue some investors, but our style is to uncover businesses with current fundamental value and significant growth upside if executed. PyroGenesis certainly holds significant growth upside one of our basic criterion, but the current lack of operational positive cash flow for the last 12-months and high trailing valuations prevent us from recommending the company near-term. We continue to monitor PyroGenesis.

Your Stock Our Take

Came in from Dave

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Parts Id Inc. (ID:NYSE)

Current Price: $5.95

Market Cap: $192 Million

What does the company do?

Parts iD is a digital commerce company focused on providing parts and accessories within the automotive and other niche markets including boats, camping, recreation.

The company initially launched as CARiD.com back in 2008 and has become a dominant player in the space (I actually used the website to purchase car parts before for my Subaru in 2010).

The company’s success led it company to go public via SPAC toward the end of 2020.

Key Points:

• On September 8 the company announced adding multiple Original Equipment Parts manufacturers to its supply chain including Dodge, Ford, Jeep, Honda, Toyota and Lexus.
• On March 24^th the company announced an agreement to expand its tire installation network to over 12,000 by the end of the year. Right now it has about 2000 shops in its network. (Essentially someone can order tires and simultaneously book an appointment with one of these shops).

Recent Financial Results: (Q2, 2021)

• Revenue was up 14.5%, to $130.4 million compared to the same quarter last year
  • The increase was attributable to a 9.2% increase in conversion rates and a 20.0% increase in average order value, partially offset by a decline in traffic.
• Adjusted EBITDA was $4.2 million, a decrease of 24% compared to $5.5 million for Q2 last year.
  • The decrease was partially due to higher advertising expenses.
• Net Profit was just slightly into the green at $600 thousand.
• Balance sheet – $27.3M in net cash. (Cash still from its IPO).

Looking at the revenue over the past 4 years, growth has been a little spotty:

On a valuation basis:

Our Take:

Parts Id operates in a very competitive space, but the company does provide a diverse product offering for almost all types of enthusiasts. I see a reasonable runway for growth considering the company is bringing on OEM parts to its product catalog, is expanding new market verticals, has its own private label brands (with about 11 so far) and is growing its tire installation network. However, with no financial guidance and a high-water mark for revenue in 2020 (driven by the online push from COVID-19) it is difficult to determine whether going forward they will be successful in continuing to grow their topline revenue at a similar pace in 2020 and beyond.

Following the company’s IPO the business is flush with cash and trades at reasonable multiples in relation to peers. If we look at its primary competitor, Carparts.com, it looks to be trading at reasonable multiples. But when comparing it to larger brick and mortar names, I would argue that it is trading near fair value. If Parts Id can continue to grow at a double-digit rate, there could be some value here. And ultimately, it would be great to speak with management to get an indication of the business’s growth outlook.