KeyStone’s Your Stock Our Take; NameSilo Technologies Corp. (URL:CSE), our Star of the Week is Real Matters Inc. (REAL:TSX), and our Dog of the Week is HEXO Corp. (HEXO:TSX).
This week in our Your Stock, Our Take we take a look at, NameSilo Technologies Corp. (URL:CSE), a low-cost provider of domain name registration and management services with over 3 million domains and customers from approximately 160 countries. The micro-cap is now posting positive EBITDA and tremendous revenue growth, a listener asks us our take.
Our Star of the Week is, Real Matters Inc. (REAL:TSX), which serves the U.S. and Canadian residential mortgage industry in two primary areas; 1) under the Solidifi brand the company offers residential mortgage appraisals and services, 2) under the iv3 brand the company offers the Canadian property and casualty insurance industry insurance inspection services. The stock is up 7.87% this week and 23.42% in the last month. Can it continue?
Finally, our Dog of the Week is, HEXO Corp. (HEXO:TSX), a high growth, but currently cash flow negative licensed cannabis company in Canada. The company ranks as one of the largest producers in the country operating with 2.4 million sq. ft of facilities in Ontario and Quebec. The stock is down 13.8% on the week and 39.8% in the last 3-months. Is it a Dog or opportunity?
Your Stock, Our Take
NameSilo Technologies Corp. (URL:CSE)
Current Price: $0.45
Market Cap: $26.6 million
What does the company do?
NameSilo is a low-cost provider of domain name registration and management services and is an ICANN-accredited registrar. NameSilo is a high growth registrar with over 3 million domains and customers from approximately 160 countries. NameSilo is one of the largest domain name registrars in the world and offers .com and .net domains as well as the latest top-level domains.
The company’s focus in 2019 will be to offer an extensive set of new easy-to-use cloud-based technology products that will enable NameSilo customers to establish a digital presence and connect with their customers. Management believes that these new products will further increase core revenues and margin growth for NameSilo, improve customer retention and improve the value proposition to the customer base.
Key Points:
The company is up 27% since the beginning of 2019, but has declined somewhat since the end of April, likely along with the market as there is no big negative company specific event causing the small slide.
The majority of the share price appreciation begin on March 6th, when industry source Registrar Owl reported that NameSilo was the second fastest growing domain registrar on the planet, behind only industry giant Alibaba in the month of November 2018. This was followed at the end of March by a release of very strong growth financial results.
On June 7th, the company was voted “Best Registrar 2019” in a poll taken by Namepros, an online domain name discussion community. Subsequently, on June 18th, the company announced a restructuring of its loan which resulting in the repayment of approximately $1.28 million in principal of loans.
Recent Quarterly Financials:
- Revenue for the first quarter ended March 31 was $6.5 million, compared to $2.5 million in Q1 2018, up 160%.
- Net loss fell slightly to $898,795 in the first quarter of 2019, compared to a loss of $931,199 in the first quarter of 2018.
- Adjusted EBITDA was $242,531 in the first quarter of 2019, compared to a loss of $58,701 in the first quarter of 2018.
Our Take:
Negative TTM Earnings
EV/EBITDA: 62.4x
Current Ratio: 0.61
Net Debt: $8.5 million
D/E: 1.22
NameSilo has experienced rapid growth in the last year after becoming a public company and has now produced positive EBITDA, not only for the quarter, but for the trailing twelve months. This explosive growth can also be seen reflected in reporting that the company has become the second fastest growing domain registrar behind only Alibaba.
While the growth we have seen in the last year is tremendous, the company is still reporting negative net income, trades at a very high EV/EBITDA, and its quite leveraged with a net-debt-to-equity ratio of 1.22 and a negative working capital position. While it is an exciting opportunity and may have a place in a portfolio looking for high-risk high-growth companies, it does not meet our criteria due to the risk in its balance sheet at present and the higher multiple on the stock at present. Ideally, cash flow will increase lowering debt to cash flow and price to cash flow multiples producing a more affordable growth business with better certainty. The stock is certainly interesting and we are monitoring the company for these advances. reduces its debt exposure.
Weekly Star
Real Matters Inc. (REAL:TSE)
Current Price: USD$9.59
Market Cap: USD$817.36 Million
Star Performance:
The stock was up 7.87% this week, 23.42% in the last month and is up 190.61% year-to-date.
The company IPO’d in May of 2017 at $13 per share and trended downward to where it bottomed in late 2018 at $3.00 per share but has now regained some of its losses to where to its currently trading around $9.50.
What does the company do?
Real Matters Inc. is a Canadian network management services provider for the mortgage lending and insurance industries. The company’s platform combines proprietary technology and network management capabilities with tens of thousands of independent qualified field agents. The company operates different brands focused on individual market segments in the United States and Canada.
Real Matters Inc. serves the U.S. and Canadian residential mortgage industry through Solidifi brand which offers residential mortgage appraisals for purchase, refinances and home equity mortgage origination transactions, while the Canadian property and casualty insurance industry are served through iv3 brand that provides insurance inspection services to property and casualty insurers.
What is driving the stock?
This week the stock is being driven by better than expected Q3 financial results which were reported on Wednesday, July 31, 2019.
This gain was mainly driven by record-high U.S. Appraisal transaction volumes and its U.S. Title volumes which doubled year-over-year.
And over the last year, the stock’s performance also appears to be driven by positive financial performance as the company has been working toward profitability.
Financial Results
Q3 2019 (June 30th, 2019)
- Revenue increased 24.35%, to $91.425 million from $73.523 million over the same quarter last year.
- Adjusted EBITDA was up substantially to $10.4 million from $0.9 million for the same quarter last year
- Net Income attributable to common shareholders increased 412.53%, to $3.885 million from $0.758 million.
- On a diluted per share basis, $0.04 cents per share from $0.01 cents per share for the same quarter last year.
Conclusion:
Looking longer term, the company’s twelve-trailing month (TTM) revenue actually decreased 4.44%, but its (TTM) net income was a loss of $1.436 million compared to a loss of $6.472 million for the prior (TTM) period. So, it is possible to see that the company is working towards profitability despite revenue decreasing slightly. But nonetheless, the company is still not profitable.
The company has an EV/EBITDA multiple of 50.85x – which considering the company’s lack of profitability appears to be quite pricey.
The company is also very liquid with minimal to no debt and a large cash balance of $60.5 million.
Given the stock’s current valuation and lack of profitability, it is not a stock that KeyStone would recommend to clients despite the company’s growth and path to profitability.
So, in conclusion, given Real Matter’s impressive quarterly results and its path toward consistent profitability, the stock has risen considerably this week and year and has claimed the coveted status of our Star of the Week.
Weekly Dog
HEXO Corp. (HEXO:TSX)
Current Price: $5.62
Market Cap: $1.37 Billion
Dog Performance:
The stock is down 13.8% on the week and 39.8% in the last 3-months.
What does the company do?
HEXO is one of the larger licensed cannabis companies in Canada. The company operates with 2.4 million sq. ft of facilities in Ontario and Quebec. HEXO is also expanding internationally and has a foothold in Greece to establish a Eurozone processing, production and distribution centre. The company serves the Canadian adult-use markets under its HEXO Cannabis and Up Cannabis brands, and the medical market under HEXO medical cannabis.
What is driving the stock?
Q3 Results
- Q3 2019 revenue increased tremendously to $15.93 million from $1.2 million in Q3 2018 prior to legalization.
- Q3 quarterly accounting net loss was reported at $7.75 million.
- Sales of adult use cannabis were actually down slightly in the quarter from Q2 at $14.6 million versus $14.79 million.
Conclusion
The lack of Q2 to Q3 growth may have tempered optimism in the business near-term given the fact that with businesses with high growth multiples, the market like to see solid quarter to quarter growth momentum.
HEXO reported in the quarter that it remains on-track ramping up to $400 million net revenue in fiscal 2020 and to double net revenue in Q4 fiscal 2019 – these numbers sound great, but with the general lack of cash flow in the segment at present, the market is taking a wait and see approach and pricing in some execution risk at the moment.
The company has a strong balance sheet with $173 million in cash and limited debt to help execute on its growth plans.
Cannabis stock have been selling off generally of late powered by some sector specific regulatory and profitability concerns and in a risk off trade coinciding with general market weakness so it is not surprising to see a HEXO hit our radar as the Dog of the Week.
There is not a a great deal of company specific negative news other than the fact the stock trades at high premiums to current underlying cash flow and one its betting on future cash flow streams which can be uncertain. In a jittery market, stocks with this profile tend to sell off and we are seeing that in HEXO with the stock nearly cut in half since its late April highs.
