KeyStone’s Your Stock Our Take; BeWhere Holdings Inc. (BEW:TSX-V), our Dog of the Week is CannTrust Holdings Inc. (TRST:TSX), and Star; The Simply Good Foods Company. (SMPL:NASDAQ).
This week in our Your Stock, Our Take we take a look at micro-cap, BeWhere Holdings Inc. (BEW:TSX-V), a Mobile Internet of Things (M-IoT) solutions provider which is growing revenue at a significant clip. A listener asks our take on the stocks as it progresses towards potential profitability. Our Star of the Week is, The Simply Good Foods Company. (SMPL:NASDAQ), a developer, marketer and seller of branded nutritional snacking and meal replacement products. The business seems to be on trend and the stock is responding following a strong quarter released this week up 17.5% in the last 5-days and 47% year-to-date. Can it continue? We will let you know. Finally, our Dog of the Week is, CannTrust Holdings Inc. (TRST:TSX), is a federally regulated licensed producer of medical and recreational cannabis in Canada. On July 8th, CannTrust disclosed that it had gotten into hot water with Health Canada by producing more than 12 metric tons of dried cannabis in unlicensed growing facilities. Is it a Dog or opportunity?
Aaron Dunn – Video
HOW CAN YOU AVOID BEING A VICTIM OF FRAUD IN THE STOCK MARKET?
I made this video because I’m passionate about investing and about finding tools that can help people avoid unnecessary risk and losses. Anybody can lose money on a bad investment but being the victim of stock fraud is pain on a whole different level.
Thankfully, there are some tools that predictive analytics and statistics provide that can steer investors away from bad ideas. One tool that has caught my attention is called the Beneish M-Score.
This is a relatively simple tool that was developed to determine if there is a high probability that a particular company is manipulating its earnings. Students used this tool to flag Enron as a potential fraud 2 years before the information was public. In a 2012 research report, it also successfully identified 12 out of 17 cases of high-profile earnings manipulation using publicly available data. Although the M-Score is relatively simple to implement it still requires some accounting knowledge. In a future video, I am going to make and demo a program that calculates the M-Score automatically. This will allow us to see how many companies the M-Score is flagging as potential frauds today.
Your Stock, Our Take
Quite simply asks our take on BeWhere Holdings Inc. (BEW:TSX-V).
- Evan – Via Email.
BeWhere Holdings Inc. (BEW:TSX-V)
Current Price: $0.18
Market Cap: $11.6 million
What does the company do?
BeWhere Holdings In. is a Mobile Internet of Things (M-IoT) solutions company that designs and sells hardware with sensors and software applications to track real-time information on non-powered fixed and movable assets, as well as monitor environmental conditions. Core to its solution is the introduction of a Bluetooth® alternative to active RFIDtecnolology which has been the standard in the asset monitoring market for years. BeWhere is first to market a solution providing long range (up to 250 meters), weather proof enclosure (IP68 rated) and features rich functionality using Low-Energy Bluetooth®.
The company develops mobile applications, middle-ware and cloud-based solutions that stand-alone or that can be readily integrated with existing software. BeWhere’ solutions are cutting edge, using the latest available cellular technologies (LTE-M and NB-IoT) and offering customers low-cost sophisticated technology to implement a new level of visibility to their businesses.
BeWhere M-IoT devices are small rugged devices, powered either by two long-life AA batteries or solar energy rechargeable.
Applications and industries served include construction & utility, any type of goods in service such as pallet tracking, and government assets.
As they are self-powered, they are simple and quick to install, without any additional electrical wiring. They are configured to report their internal and external sensor data and GPS location to BeWhere’s servers via the M-IoT networks. Users can view and manage the information as well as edit their reporting frequency to match their requirements through easy-to-understand dashboards. The solution also supports alarms and warnings that can alert users in real-time.
Key Points:
BeWhere has been a volatile company over the last year, trading as high as $0.33 in October 2018, down to $0.18 in December 2018, and then back up to $0.33 in February 2019, before dropping significantly once again over the last 5 months back down to a low of $0.17 just on Friday. In fact, if we look back just a little further, in December of 2017, the company traded for a high as $0.62 briefly, from which it is now down 71% in 19 months.
The company believes that it is uniquely positioned for growth due to it being an early entrant in low-cost, low-powered, location-based data solutions. By working with major telecommunication providers including Bell, Bewhere believes the process of bringing its product and application solutions to market will be expedited.
The company continues to focus on developing contracts and business opportunities with fleet management companies and service providers in North America that have existing relationships with end users, such as Bell, Trak-iT, SecureQuip, and ArionTech. This strategy is paying off in a quicker sales cycle and allows BeWhere to expand its marketing reach with minimum sales force keeping overheads low.
Recent Quarterly Financials:
- Revenue for the first quarter ended March 31, 2019 was $1.4 million, an increase of 68% over the prior year period.
- Net loss grew to $506,603 in the first quarter of 2019, compared to $454,588 in the first quarter of 2018.
- Adjusted EBITDA was a loss of $334,629 in the first quarter of 2019, compared to a loss of $335,753 in the first quarter of 2018.
Our Take:
Negative Earnings
Negative EBITDA
Current Ratio: 5.96
Cash Ratio: 3.56
Net Cash: $3.6 million
Cash makes up 47% of Total Assets.
D/E: 0.01
BeWhere seems to be running focused and efficient business plan, focusing on bringing specific IoT solutions to logistics in the most cost-efficient manner possible. Revenue growth in the last quarter was very strong at 143%, but off a small base in the range of half a million. The company’s balance sheet looks good with $3.6 million in cash and not much debt. But BeWhere will need the cash as its continues to produce losses – not currently distributing its product enough to cover its development costs and overheads. Due to a lack of profitability, BeWhere has yet to pass our minimum threshold and, to date, Keystone does not recommend the stock.
That is not to say, however, the company may not find success and eventually become profitable. If the company continues expanding in a cost-efficient manner like it has, it may become profitable at some point, as its revenues are growing extremely fast, while on average, its losses have reduced over the last couple years. The company only made less than a quarter of a million in revenue for the entirety of 2016 and is making nearly 6 times that in revenue now in a single quarter. Of note, Recurring revenue increased by 42% in the latest quarter to $385,594 compared to $270,970 – again, the numbers remain small.
Bewhere is a company to keep an eye on, as it operates in a relatively young space and continues to experience very rapid growth.
Weekly Star
The Simply Good Foods Company. (SMPL:NASDAQ)
Current Price: $27.74
Market Cap: $2.27 Billion
Star Performance:
The stock was up 17.5% this week from $24 to $28 and is up 47% YTD.
What does the company do?
The company through its subsidiaries, is engaged in developing, marketing and selling of branded nutritional foods and snacking products. The company offers a range of products such as nutrition bars, ready to drink (RTD) shakes, snacks and confectionery products. These products are marketed under the Brand Names: Atkins, SimplyProtien, Atkins Harvest Trail, Atkins Endulge, and Atkins Lift.
What is driving the stock?
On July 2nd, 2019, the company reported better than expected third quarter financial results.
The company delivered double-digit sales growth in both the third quarter and YTD periods driven by what the CEO claimed, “a successful marketing strategy that positions Atkins as the brand of choice for consumers seeking nutrition’s and delicious snacking and meal replacement products for low carb lifestyles.”
Speaking in terms of the industry, the low carb diet trend has been gaining popularity throughout 2018 and into 2019. As there has been evidence that a low-carb diet may help people lose weight more quickly than a low-fat diet.
Financial Results
Q3 2019 (July 2nd, 2019)
- Revenue increased to $139.5 million compared to $107.3 million, up 30%
- Up due to the company’s successful marketing strategy.
- Net Income increased to $13.5 million compared to $6.3 million, up 88.7%
- On a diluted per share basis, $0.16 compared to $0.06, 166%
- Adjusted EBITDA increased to $24.9 million compared to $17.94 million, up 38.8%
Conclusion:
The company trades at a trailing twelve-month PE of 43.28, has a debt-to-equity ratio of .2302. and it has a TTM period over period revenue growth rate of 17%.
The company does appear to offer some value at its current level if it is able to maintain its revenue growth. But its recent increase in sales due to the successful marketing strategy taking advantage of the low carb diet still has some questions around it as to whether the boost to sales will be sustainable.
Nevertheless, the gains this week make it our Star!
RYAN
Simply Good Foods continues to expect that it will end the year strong with net sales and Adjusted EBITDA growth up meaningfully versus last year. Perhaps most importantly, management anticipate full year fiscal 2019 net sales and Adjusted EBITDA growth to be similar to the year-to-date percentage increases. This outlook reflects solid volume growth and the benefit of a fifty-third week, as well as incremental strategic investments in marketing and our expectation that retail takeaway will sequentially slow given the more challenging year-ago growth rates.
Perhaps the current run has legs – we will monitor the stock!
I am going to make a terrible pun here, but, Aaron, can we trust – Canadian licensed Cannabis producer, cannabis, CannTrust Holdings Inc. (TRST:TSX)
Weekly Dog
CannTrust Holdings Inc. (TRST:TSX)
Current Price: $4.66
Market Cap: $ 653.89 Million
Dog Performance:
At market close on Friday July 5th, the company was trading for $6.46. When the market opened on Monday July 8th, it was trading for $5.35, a drop of 17% over the weekend. By 12:15pm on Monday, it had dropped further down to $5.05 making it a total of drop of 22% so far for the day. Over the last four months, the company’s shares have fallen a total of 55%.
What does the company do?
CannTrust is a federally regulated licensed producer of medical and recreational cannabis in Canada. Founded by pharmacists, CannTrust brings more than 40 years of pharmaceutical and healthcare experience to the medical cannabis industry and serves more than 70,000 medical patients with its dried, extract and capsule products. The company operates its Niagara Perpetual Harvest Facility in Pelham, Ontario, and prepares and packages its product portfolio at its manufacturing centre of excellence in Vaughan, Ontario.
What is driving the stock?
The company’s share price began to take a downward turn on March 28th, when the company released its Q4 release showcasing significant losses. The company had another significant drop when, on May 2nd, it announced its pricing for its public offering of common shares.
Most recently, in the morning of July 8th, CannTrust received a compliance report from Health Canada notifying the company that its greenhouse facility in Pelham, Ontario is non-compliant with certain regulations. The company is taking actions to ensure current and future compliance. The non-compliance originates from the growth in 5 unlicensed rooms (out of 12 total rooms) between October 2018 and March 2019 during which time CannTrust had pending applications for licensing the rooms. The rooms were subsequently licensed in April 2019. This has led to the company placing a hold on inventory including approximately 5,200 kg of dried cannabis, and an additional 7,500 kg of dried cannabis equivalent at its Vaughan manufacturing facility.
The company maintains that all product sold from the impact rooms have passed quality control testing and is only on hold until Health Canada has confirmed the product is compliant with regulations.
Financial Results
Q1 2019 compared to Q1 2018
- Revenue was $18.8 million compared to $7.8 million, up 140%.
- Reported net income was $12.8 million compared to $11.4 million, up 12%.
- On a diluted per share basis, it stayed at approximately $0.12.
- Adjusted net income was a loss of $9.7 million compared to a loss of $0.9 million.
- On a diluted per share basis, a loss of $0.09 compared to a loss of $0.01.
- Adjusted EBITDA was a loss of $4.6 million compared to a loss of $0.2 million.
Management says that they expected to reach full annual capacity of 50,000 kg by Q3 2019, with 81 acres of land for outdoor cultivation. Additionally, management expects to exit 2020 with a production rate of 200,000kg to 300,000kg per year.
Conclusion:
Negative Earnings
Negative EBITDA
Current Ratio: 5.64
Cash Ratio: 1.73
Net Cash: $27.2 million
D/E: 0.08
The crackdown of Health Canada and subsequent drops in share price is an example of what can happen when a cannabis company tries to aggressively capitalize on opportunity and neglects follow the rules and processes outlined by authorities. With approximately 12,700 kg of dried cannabis or equivalent on hold (which makes up over 25% of the company’s expected full capacity production as of Q3 2019), this is a significant short-term setback with uncertain consequences for the long-term. As with basically all cannabis producers, the company is not operating anywhere near cash flow positive, and as attempted expansion continues, revenues ramp up, but loses ramp up far faster. Until we see some profitability in the industry as well as understand what kind of impact that the company’s non-compliance with Health Canada will have longer term, this is not a company that we would recommend.
