KeyStone’s Your Stock Our Take: Absolute Software Corporation (ABT:TSX) & Uber Technologies Inc. (UBER:NYSE), and STAR: China Jo-Jo Drugstores Inc. (CJJD:NASDAQ). 

Our first Your Stock Our Take is, Absolute Software Corporation (ABT:TSX), a provider of SaaS or software as a service-based end-point security and data risk management solutions. A listener asks us our outlook on this cash rich, profitable small-cap stock.

Our second YSOT of the Week, is Uber Technologies Inc. (UBER:NYSE), the first and largest ride sharing company in the world.  With the company, finally and I mean finally, coming to our hometown of Vancouver, we review the business and its potential investment merits with the stock still trading below its IPO price.

Our Star of the Week, China Jo-Jo Drugstores Inc. (CJJD:NASDAQ), is a retailer and distributor of pharmaceutical and other healthcare products typically found in retail pharmacies in China. The stock was up around 20% in the last week and up 67% in the past 3-months – recent gains appear to be driven by the recent outbreak of the Coronavirus. We let you know if it is sustainable.

 

Your Stock, Our Take

Absolute Software Corporation (ABT:TSX)

Current Price: $9.11

Market Cap: $380 Million

What does the company do?

Absolute Software is a provider SaaS-based end-point security and data risk management solutions. Absolute sells to commercial, healthcare, education, and government customers. The company has over 20,000 customers globally and actively protects over 6 million customer devices.

Key Points:

Fiscal Q1 Financials

  • Total revenue in was $25.7 million, representing a year-over-year increase of 6%.
  • Adjusted EBITDA – pre-IFRS 16 was $6.6 million, or 26% of revenue, compared to $4.1 million, or 17% of revenue, in Q1-F2019 – 60% growth – which is attractive.
  • As for net income, in Q1 2020, the company recorded net income of $3.5 million, up 173% from $1.3 million in Q1 2019.

Conclusion

At present, the growth is likely to continue to be driven by PC vendor shipments. Based on Gartner’s estimate, worldwide PC shipments grew 2.3% year-over-year in the fourth quarter of 2019 – the third consecutive quarter of modest growth. Over the past 4-years the total revenue growth, not annual revenue growth, the total was just over 11%. 2020 guidance implies 4.1%-7.2% revenue growth.

Absolute Software is a good business, with a great balance sheet paying a decent 3.5% dividend yield. For those that are happy with the dividend and modest mid single digit growth, it is an option. Perhaps management makes an acquisition with cash on hand, but we do not see prices as likely attractive in its primary space at present. We monitor the stock and it will be featured in our upcoming Profitable Canadian Cash Rich, Small-Cap report, but we would like to see more growth before we recommended it near-term. The stock potentially is a takeover target.

 

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Your Stock, Our Take

I’m excited that Uber is up and running in Vancouver now. What is your take on the company as an investment?

  • – via email 

Your Stock, Our Take

Uber Technologies Inc. (UBER:NYSE)

Current Price: $36.70

Market Cap: $62.6 billion

What does the company do?

Uber is known as the first and largest ride sharing company in the world. The company is based in San Francisco and serves 91 million users in over 63 countries. Although Uber is best known for its ride sharing app which matches riders with drivers, the company also connects restaurants with hungry consumers via the Uber Eats application. Uber also has other service options it is developing which could eventually connect its users with autonomous vehicles, delivery via drones and Uber Elevate, which would provide aerial ride-sharing.

Key Points:

Starting with a little history on the company, Uber has been operating since 2010 but just started trading as a public company in May of 2019. Uber’s IPO has not been a success (at least so far). The stock IPO’d at a price of $45 per share and over the subsequent 6 months declined 42% to hit a low of $26 per share. The stock has since partially recovered from its low point to $37 today but is still below the IPO price. This is during a period where the overall market across North America has been very strong.

Full disclosure…I am customer of Uber and I’m also very excited to finally see the app working in Vancouver. I haven’t used it here yet but I use it a lot when I travel, and from a customer perspective, I think the app is great.

However, today I’m not evaluating Uber as a service; I am evaluating the stock as an investment. To do that, I need to look at the financial condition of the company. 

Recent Financial Performance

  • Uber does not have much of a history as a public company but they did release Q3 2019 results on November 9th.
  • Revenue growth was strong, increasing 30% to $3.8 billion.
  • The company is not profitable, reporting a net loss of $1.16 billion.
  • The company burned through $878 million in cash flow for Q3 and $3.2 billion in cash flow over the last 4 quarters.
  • Uber does have a large cash balance of $12.6 billion and total debt of around $7.5 billion.

Conclusion

Our take is that Uber is not an investible company for KeyStone right now. We need to see that a company can be profitable and Uber’s huge cash burn signals a major risk to us. This doesn’t mean that the company won’t end up doing well long-term. I hope it does. As I said, I love their ride sharing app and hope that it continues to be a success.

However, as an investment, we have no way of knowing when the company will break into profit. There is really no sign of that now. That fact is that Uber has not yet proven a profitable business model. Clearly, the market also has concerns given the very poor performance of the company’s IPO.

The company has cash of $12 billion which gives it a decent amount of runway. But still, with a cash burn of over $3 billion the last 12 months, they are going to need to reduce operating losses and start making progress towards profitability. If this doesn’t happen, then it is likely that investors will be stuck with more losses. We think that there are better companies out there for investors with proven, profitable business models.

 

Weekly Star

China Jo-Jo Drugstores Inc. (CJJD:NASDAQ) 

Current Price: US$2.08

Market Cap: US$63 million

What does the company do?

China Jo-Jo Drugstores Inc. is a retailer and distributor of pharmaceutical and other healthcare products typically found in retail pharmacies in China, and it operates around 129 retail pharmacies.

The company currently operates in four business segments: (1) retail drugstores, (2) online pharmacy, (3) wholesale business, and (4) farming and selling herbs used for traditional Chinese medicine.

Star Performance:

The stock was up around 20% in the last week and up 67% in the past 3-months.

What is driving the stock?

On November 14, 2019, the company reported its Q2, 2019 financial results. Since this news release the company’s share price is up over 60%.

Financial Results

Q2, 2019

  • Revenue increased 3.5%, to $28 million compared to the same quarter last year.
  • EBITDA improved slightly to a loss of $1 million compared to a loss of $1.4 million for the same quarter last year.
  • Fully diluted earnings per share (EPS) also improved to a loss of $0.04 compared to a loss of $0.06 for Q2, 2018.

Conclusion:

Now the question is whether the upward share price movement over the past three months is justified by these results?

Revenue has been slowly increasing over time and its twelve trailing-month (TTM) sales figure is up around 10% year over year. Despite decent revenue growth, it has been a bumpy ride for the business, and they are still very far from posting consistent profitability or even positive EBITDA. Even if do look back a couple years to see if the company has made any progress, they are still posting relatively similar profit and EBITDA figures.

Looking at the company’s balance sheet, they have a net-debt position of around $18.7 million and are quite levered with a debt-to-equity ratio if 1.67. Considering the company has negative EBITDA, this large debt balance could definitely be a concern going forward.

I personally do not believe that this large share price increase is alone justified by the company’s financials and has further been propelled by the recent outbreak of the Coronavirus. We have seen the Chinese markets down in the last few weeks due to the Coronavirus scare, but analysts have noted the wider health care sector could benefit from higher demand for products and services related to prevention and diagnosis of viral diseases with similar symptoms. Now it must be emphasized that if this is what has been propelling the stock higher, it is completely speculative in nature and certainly not something to justify an investment decision on.

This company is clearly far from meeting our investment criteria as they have mediocre financials and a debt heavy balance sheet. But given the company’s recent share price performance over the past week and months make it our Star of the Week.