KeyStone’s Your Stock Our Take: Quorum Information Technologies Inc. (QIS:TSX-V), STAR: Ballard Power Systems Inc. (BLDP:TSX), and DOG: Shopify Inc. (SHOP:TSX)
This week in our Your Stock, Our Take segment we take a look at Quorum Information Technologies Inc. (QIS:TSX-V), provider of dealership and customer management software and value-added services to the automotive industry. The company has performed in 2019, but pulled back slightly of late. A listener asks us our take on the stock.
Our Star of the Week is Ballard Power Systems Inc. (BLDP:TSX), which designs, develops, manufactures, sells, and services fuel cell products for a variety of applications, focusing on motive power (material handling and buses) and stationary power (back-up power, supplemental power, and distributed generation). The stock is up 10% in the past week, 20% over the last 3 months, and 104% year to date.
Finally, our Dog of the Week is, Shopify Inc. (SHOP:TSX), Canada’s largest tech company by market capitalization. Shopify provides an online commerce platform for small to medium sized businesses. To be clear, the stock has been a star for much of its history, but shares are 12% in the last week and 15% from its all-time high in August. Is the drop an opportunity or a sign of things to come? We discuss.
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Your Stock, Our Take
Quorum Information Technologies Inc. (QIS:TSX-V)
Current Price: $0.98
Market Cap: $59.8 million
What does the company do?
Quorum Information Technologies Inc. is an information technology company that focuses on the automotive retail business. Quorum is focused on developing, marketing, implementing, and supporting its portfolio of software and services for automotive dealerships in Canada and the United States that includes: 1) “XSELLERA-TOR,” a dealership management system that automates, integrates, and streamlines key processes across departments in a dealership; 2) “DELEARMINE CRM,” a sales and service customer relationship management system and set of business development centre services; 3) “Autovance,” a sales desking system that increases sales department gross margins and improves customer satisfaction; and 4) “Advantage Oasis,” a full showroom system for both franchised and independent dealerships.
Growth has been excellent at Quorum in the most recent quarter in particular.
Following a couple game changing acquisitions the company’s above mettion 4 divisions XSellerator, DealerMine, Autovance and Advantage, have been integrated and in Q2 2019, collectively posted both record total revenue amount and a record Software as a Service (SaaS) revenue from 1,007 customers, compared to 456 customers in Q2 2018. SaaS revenue in the quarter was $5.44 million, or 66% of total revenue.
Recent Quarterly Financials:
- Revenue for the second quarter ended June 30, 2019 was $8.2 million, an increase of 130% over the prior year period.
- Net Income grew to $309,000 in the second quarter of 2019, compared to a loss of $216,000 in the second quarter of 2018.
- EBITDA was $1.4 million, or 16% of revenue, in the second quarter of 2019, compared to $0.6 million, also 16% of revenue, in the second quarter of 2018.
Current Ratio: 1.42
Intangible Assets and Goodwill make up a combined 63% of Total Assets.
Following the company’s recent acquisition, Quorum Information Technologies posted strong growth in Q2 2019, with record revenue and EBITDA. The company is now significantly leveraged with over $10 million in net debt that is equal to 3.17 times its EBITDA over the last 12 months. Current debt levels are at the higher end of what we would call reasonable – but not yet unreasonable. Given the strong growth in adjusted EBITDA posted in its second quarter, the current trailing net debt to EBITDA ratio should rapidly decrease over the course of the year and into 2020. The value created via recent acquisitions has been captured by share price gains in 2019 to a large degree. At present, the company trades at closer to fair value, but further strong acquisition growth over the near-term could provide further optimisms for the stock as leverage decreases. We like the SaaS part of the business which now has an annual revenue run rate in the range of $22 million – giving the company strong predictability.
There is a good deal to like about Quorum and the company appeared as one of a select few Canadian Growth Small-Caps we are monitoring form our recent Breakthrough Small-Cap Report.
Ballard Power Systems Inc. (BLDP:TSX)
Current Price: $6.68
Market Cap: $1.554 billion
BLDP shares are up 10% over the weekend, up 20% over the last 3 months, and up 104% year to date.
What does the company do?
Ballard Power Systems Inc is a clean energy growth company. The company is engaged in proton exchange membrane fuel cell development and commercialization. The company’s main business is the design, development, manufacture, sale, and service of fuel cell products for a variety of applications, focusing on motive power (material handling and buses) and stationary power (back-up power, supplemental power, and distributed generation). A fuel cell is an environmentally clean electrochemical device that combines hydrogen fuel with oxygen (from the air) to produce electricity. Geographically, it has a presence in China, Europe, North America and other of which Europe generates maximum revenue.
What is driving the stock?
The company has been gaining significant optimistic momentum in the last 9 months, as developments and interest in fuel cell electric mobility is growing. Or appears to have come back into vogue again – to a degree.
Randy MacEwen – President and CEO
“The global megatrend toward electrification of mobility is accelerating and putting increased momentum behind fuel cell-based power for motive applications. There are clear signals that the hydrogen and fuel cell industry is at an exciting stage in its evolution…We also note our expectations for strong growth in 2020 and beyond to underpin Ballard’s continued leadership in powering fuel cell electric vehicles.”
In the most recent quarter, Ballard Power announced a $44 million order from the Weichai-Ballard joint venture in China. Additionally, it was announced that Ballard is a member in the new “H2Bus Consortium” which plans to deploy 1,000 fuel cell electric buses in European cities by 2023.”
- Order Backlog increased to $211.6 million at end-Q2, from $188.4 million in the prior quarter. The 12-month Order Book also increased to $126.7 million at end-Q2, from $76.0 million in the prior quarter.
Q2 2019 compared to Q2 2018
- Revenue was $23.7 million compared to $26.4 million, down 11%.
- Net income was a loss of $7.0 million compared to a loss of $4.3 million
- On a diluted per share basis, a loss of $0.030 compared to a loss of $0.024.
- Adjusted EBITDA was a loss of 5.0 million compared to a loss of $0.8 million.
- On a diluted per-share basis, a loss of $0.022 compared to a loss of $0.004.
Current Ratio: 4.40
Cash Ratio: 3.03
Net Cash: $143.0 million
The story here is that, while the company is not reporting profitability, and in fact has seen falling revenue and increasing losses from the previous year, the optimism regarding the outlook for 2020 and beyond is very strong, creating the potential for significant shareholder value. While it is true that significant revenue-generating opportunity is developing for Ballard Power Systems for the coming years, the path to profitability is not yet clear. What the company does have going for it that we like is its very strong net cash position, making it poised to capitalize on possible growth opportunities in the coming years, and if the market and company outlook are accurate, there will be. The company exists in an important industry space in the coming years and is definitely a company we will continue to monitor for what its actual growth potential is, as well as its path to profitability. Historically, Ballard has always had “promise”, but all it has produced for shareholders is an accumulated deficit of over $1.2 billion dollars.
- Cash reserves were $163.7 million at June 30, an increase of 365% from the end of Q2 2018 and approximately flat compared to the prior quarter.
- During Q2 Ballard received $46.8 million in new orders and delivered orders valued at $23.7 million, thereby increasing Order Backlog to $211.6 million at end-Q2, from $188.4 million in the prior quarter. The 12-month Order Book also increased to $126.7 million at end-Q2, from $76.0 million in the prior quarter. Consistently
Shopify Inc. (SHOP:TSX)
Current Price: $461
Market Cap: $50 Billion
Shopify’s shares are down 12% over the last 5 trading days and 15% from its all time high of $541 in late August. The company’s share price went on an absolute tear at the start of 2019 and is up 250% year-to-date in spite of the recent decline.
What does the company do?
For those not familiar with the company, Shopify is Canada’s largest tech company by market capitalization. Shopify provides an online commerce platform for small to medium sized businesses. The company is often compared to Amazon but really its designed to help entrepreneurs build their own, online store using a wide range of different tools and apps.
What is driving the stock?
Its pretty clear what has been driving the company’s rise since the start of the year. It’s a disruptive tech stock and investors are excited about the potential of it becoming the next Amazon or something else big. Revenue and many of the key metrics have been improving at an impressive rate.
The company recently reported its Q2 2019 results on August 1st. Revenue for the quarter increased 48% to $362 million. There was lots of activity in the quarter with respect to partnerships and strategic initiatives. Shopify also more recently announced an acquisition of a company called 6 River Systems which provides warehouse fulfillment solutions largely leveraging software and robotics.
The area that Shopify falls short is profitability…meaning that there isn’t any yet. Operating loss in Q2 was $39.6 million. Net loss was $28.7 million, or $0.26 per share, compared to $24 million, or $0.23 per share in the same period last year.
Shopify did report positive earnings on an adjusted basis of $15.8 million, or $0.14 per share, compared with $2.5 million, or $0.02 per share in the same period last year.
For the full year 2019, Shopify currently expects:
- Revenues in the range of $1.51 billion to $1.53 billion
- GAAP operating loss in the range of $145 million to $155 million
- Adjusted operating income in the range of $20 to $30 million, which excludes stock-based compensation expenses and related payroll taxes of $175 million
Conclusion: I believe that much of the future potential of Shopify is already factored into the share price. This is a big part of the reason that the stock has taken a slide over the last week. We can hardly call Shopify a dog overall as it has been one of the top performers on the TSX year to date. However, looking at the company today, it would be hard for us to put a value on the stock that is not well below the current price. Based on its full year 2019 guidance, the company trades at over 40 times revenue and 2000 times adjusted operating income. We would need to see a major acceleration in profitability growth to consider the company investible. Its not unusual to see a company with a 250% share price gain in less than a year pullback 10% to 20%. There are certainly several pathways for Shopify to continue its trend upwards but for now it is our Dog of the Week.