KeyStone’s Stock Talk Podcast Episode 58 – Summary

 

Special Edition: Sylogist Ltd. (SYZ:TSX-V), Parkland Fuel Corporation (PKI:TSX), Sangoma Technologies Corporation (STC:TSX-V), and Viemed Healthcare Inc. (VMD:TSX)

 

This week we have a special episode which will feature Part 2 from my interview in Toronto on Capital Ideas TV. Myself and host Mark Bunting, talk KeyStone’s general strategy, current market conditions and review some past and current Canadian Growth Stock selections including Sylogist Ltd. (SYZ:TSX-V), Parkland Fuel Corporation (PKI:TSX), Sangoma Technologies Corporation (STC:TSX-V), and Viemed Healthcare Inc. (VMD:TSX).

 

Be Greedy When Others are Fearful

 

Q3 2018 earnings season has been a wild ride for Canadian and US growth stocks – primarily to the downside. In the past month, a number of quality growth stocks have been punished for slight adjustments to forecasts or even, in some extreme cases, for not continuing to grow at the quarter-over-quarter growth rates that should have been considered unsustainable. In some cases, the corrections have been fully justified. In other cases, we would argue these have been great businesses that were just priced too high. Premium Brands Holding Corp. (PBH:TSX) is a great example. We like the business, the growth and the company continues to have a growth outlook, but in the $120 range earlier this year or this Fall in the $100 range, it was just too expensive – priced to perfection. Premium Brands is a high-quality growth story, which has consistently grown revenues by 20% over the past 4-years. But the stock recently traded with a PE in the range of 35, a rate that if very difficult to sustain long-term. In fact, in the face of any hiccup, the stock was vulnerable to a significant correction. That hiccup came in the form of a revision of growth lower going into Q4. The company is still producing solid growth, it is just not able to sustain the tremendous growth it has produced in recent years. For that, the stock is now down 42% from its highs earlier this year and dropped over 20% in a couple of sessions following the Q3 report. Again, we like the business but it is still not strikingly cheap near-term despite nearly being cut in half from its highs. This should give investors an idea of just how far near-term valuations had become stretched in some quality growth stock names. As investors, we must try to invest in great companies, but we must also assure that we are paying reasonable prices.

 

In other cases, such as XPEL Inc. (DAP.U:TSX-V), a stock we have under coverage and detailed above, the company reported tremendous Q3 results, boasting 64% revenue growth and profit that was 4 times higher than the previous period, with a growth outlook. Yet, the stock initially sold off on the results and remains under where it traded when the numbers were announced. This tells us the markets are jittery and appear to be in risk off mode near-term.

 

Let us be clear, there is not exactly blood in the streets. In fact, broader valuations in many growth stocks remains closer to the highs than lows, even with some significant pullbacks. We remain relatively cautious broadly speaking.

 

Given our cautious stance, 2018 has seen KeyStone recommend only 5 new buys to our clients in our Canadian Growth Stock Research where we would typically find 10 or more. This has left many of our clients with significant cash positions. A position we are very comfortable with.

 

If the markets continue to be volatile, as Warren Buffett would say, “we will be greedy, when others are fearful.”

 

Without further ado, let’s get to the interview.

 

Thanks for listening.

 

Keep your questions coming in for our Your Stock Our Take segment we just might answer your question in an upcoming episode.

 

As always, I wish you profitable investing.