KeyStone’s Stock Talk Show Episode 256. 

Great to be back. I will start this week’s episode by detailing why we look for profitability and growth in a stock as basic requirements for investment. In our YSOT segment Aaron begins with a viewer question on GameStop Corp. (GME:NYSE), the infamous mother of all meme-stocks, is a specialty retailer that sells new and pre-owned video game hardware, software, accessories, and collectibles. With a slight rebound in meme stock activity, the stock has once again had a volatile month – Aaron answers whether or not there is anything fundamentally appealing about the business itself.  Brett answers a viewer question on Perimeter Medical Imaging AI (PINK:TSX-V) –  a medical technology company focusing on cancer imaging tools. The stock is currently trading at $0.47 a share or $30.6 million market cap, down 74% over the past year. Brett let’s you know if there is anything to the business other than the letter “AI” at the end of its name. Brennan will revisit a past YSOT, NTG Clarity Networks Inc. (NCI:TSX-V), a digital transformation business providing outsourced software development solutions and proprietary software products to telecom, utilities, enterprise, governments, and finance companies. The stock has performed well since Brennan last answered a question on the business and he will let you know shy and if it can continue.

Let’s get to the show – we welcome my cohost, Mr. Aaron Dunn and the killer B’s, Brett, and Brennan.

We started by looking at Small-Cap Stocks – not tiny businesses, but those with market caps of under $500 million in Canada and $1 billion at the time in the US. Right down to a $10-$20 million market cap – these segments are underfollowed, can grow faster and you can find mispriced stocks.

Core to our philosophy is to uncover and invest in wonderfully profitable businesses. Profitability is a basic requirement in every investment – but why to we focus on profitability?

Why do we use growth and profitability?

Because net income growth drives stock prices.  Hendrik Bessembinder’s or Hank (a rather acclaimed finance professor) studied whether stocks beat T-bills long-term (his answer was a qualified yes) – the study looked at 26,000 stocks from 1926 to 2015. He was analyzing long-term stock returns, he examined 20 variables. Three of these variables were statistically significant.

The most significant variable was net income growth.

This is why we see net income and growth in that net income as a core tenant to any investment.

Why profitable small-cap stocks?

Let’s look at a recent 10 year period of returns for an example:

87% of all global equities that went up 1,000% or more over the past ten years started as micro-small-caps.

82% of those were profitable at the start of their ascent, and 91% had some history of profitability.

The key is a combining small, growing, profitable good businesses – this is what we do.

An example from our research of how powerful combining low valuation, profitability and growth can be: this is Hammond Power (HPS.A:TSX) – other than our clients, most Canadian investors have never heard of this stock – why?

Hammond, a leading provider of electrical transformers and a company we have long seen as a back-door way to play the electrification boom (love it or hate it) – has historically been profitable and has grown out of internally generated cash flow – Hammond has never needed big bank or brokerage money to fund its operations – these are the best types of businesses, but Bay street pays them little attention and it is to the detriment of Canadian investor portfolios. But we can take advantage of these opportunities.

A little background on Hank’s study.

What compelled him to do this?
Bessembinder got into the stocks-versus-Treasury-bills question accidentally. Initially, he was looking at data on continuously compounded returns for stocks, and noticed that the average was negative, meaning a lot of stocks were losing money.

He didn’t understand how that could be, given the fact that the overall stock market does make money in the long run, and he wanted to know why.His investigation ended up documenting the importance of the statistical concept “skewness” for stock market investing. In particular, he found that returns from long-term stock investing are positively skewed, meaning that very large returns in a few stocks pull up the average, while most stocks post modest or negative returns.

Because of skewness, he found that:

Apple had generated more wealth in the stock market than Exxon despite being 50 years younger..

This study is up to 2017 – so those numbers for the Big Tech no this list would look even large.


YSOT NTG Clarity Networks Inc. (NCI:TSX-V) 

Slide 1

I covered NTG Clarity Networks on the podcast for Jeremy back in October of 2023 while the stock then traded at $0.035. And at that time, I indicated that given its low PE multiple and if it could replicate its growth over the past three years, there was a case to be made that the stock offers investors deep value. And given the strong share price performance, I thought that I would do an update on the stock to see what is driving the price higher.

Price: $0.82

Market Cap: $32.3 Million


NTG Clarity Networks Inc. is a digital transformation business providing outsourced software development solutions and proprietary software products to telecom, utilities, enterprise, governments, and finance companies. The company has offices in Canada, the USA, Egypt, Saudi Arabia, Oman and Turkey.

Slide 2

Now looking at the stock chart here, you can see that the company did a 5:1 share consolidation in early 2024, reducing the number of issued and outstanding shares from 188M to 37.5M. So given the stock was at just $0.035 when I covered it in October 2023, post-consolidation, the share price was actually around ~$0.18 when I covered it last (rather than $0.035). So since then the stock is up around 355%.

Slide 3

The company’s revenue distribution is about 85% Professional Services and 15% Products/Software.

Professional services include things like IT, Software development, and Telecom resources. Which include things like custom software development, System integration and user training.

And Software Products include NTGApps, (NIS) or Network Inventory System, and (NTS) for Utilities, Telecom and IT Sectors.

Slide 4

So looking at the Q1 2024 results for the period ended March 31, 2024:

    • Revenue was up 92% Y/Y to $11.76M – primarily due to increasing revenue in KSA (Saudi Arabia) which is a rapidly growing market in need of technology and software to help meet their growth goals.
    • Net income was up 274% Y/Y to $2.3M – Due to the increase in revenue.
  • EPS was $0.06 per share, up significantly from $0.004 per share in Q1 2023. But if we take the share consolidation into account, the company did more like $0.035 per share. So EPS was up more like 70% Y/Y. 

Cash: $523K

Debt & Leases: $7.07M

  • Most of this debt is held by a numbered company which is controlled by the company’s CEO. The interest rate on the loan is prime + 2%.

Net Debt: $6.54M

Net Debt/EBITDA: 2.0x (Because profitability and revenue have went up, we have seen the net debt to EBITDA multiple come down a bit from the last time I covered the stock).

Slide 5

Back in October 2023, Jeremy provided me with some 2023 revenue projections – which I could not specifically find published by the company anywhere. But he quoted ~$24M in revenue & $4M in Earnings. And in the fiscal year the company ended up doing $27.7M in revenue and net income of $2.3M. So they beat on revenue and were shy on the net income side.

For 2024 the company anticipates continued strong growth from Saudi Arabia as they continue their digital transformation. And the company is guiding toward $50M in revenue for the 2024 year (which would be 80% growth over 2023), and a 10% profit margin, which provides a fwd P/E multiple of 6.2 times.

Slide 6

To conclude:

The company has shown good growth over the past three years driven by Saudi Arabia…

The stock is trading at very low fwd. P/E multiple of 6.2x but is somewhat expected given the weak track record of consistent growth and exposure to the Middle East.

The balance sheet is reasonable with net debt to EBITDA of 2.0 times (down from 2.5x last time) the share count is much more appealing following the 5:1 consolidation.

If the company can continue to execute on its growth and profitability, there could continue to be value in the stock. But due to its lack of track record, tiny size of the company/lack of liquidity, and exposure to the middle east – it is certainly more high risk.

YSOT Perimeter Medical Imaging AI  PINK:TSXV 


Perimeter Medical Imaging AI symbol PINK on the TSX Venture is a medical technology company focusing on cancer imaging tools.

The company’s current product stack includes the Perimeter S-Series Optical Coherence Tomography or OCT, Tissue Immobilizer, and Atlas Image Libary. It has AI Software in development as well as a B-series OCT which is currently in clinical development awaiting enrollment.


The technology’s goal is to better allow surgeons to be able to achieve clean or negative margins which means that the cancer has been fully removed. The OCTs allow for real-time monitoring at 10x the resolution of X-ray and the AI integration is used to identify cancer cells. Effectively the goal of the company’s products is to have better cancer removal.


Looking at the company’s share performance has not been great. The stock is currently trading at $0.47 a share or $30.6 million market cap, down 74% over the past year.


Let’s dive into why the stock has fallen so much.

The company has no significant revenue, only $98 thousand in the last quarter.

And as the company is actively marketing and developing products it does have significant expenses.
Sales and marketing of $1.3 million, R&D of $1.4 million and General and admin of $1.9 million. Notably, the company had $0.9 in fx gains and $1.6 million in net finance income. Fx gains is out of the control of the company and aren’t inherently recurring. As well finance income isn’t primarily due to interest income, $1.5 million is due to warrant liability revaluation.

Warrant revaluation resulting in a gain is effectively the share price dropped so warrants aren’t in the money or the likelihood they will be is substantially lower meaning they won’t have to issue shares resulting in a gain.

The result is a net loss of $2.1 million.


Switching to the balance sheet, the company has $10.6 million in cash.

However, as we can see the cash balance has consistently dropped over time. The company raised $48.7 million in a private placement at the start of 2022. And since like most medical development companies has burnt through the cash over time.


We can see when looking at the cash flow statement and see the company had a cash deficit before working capital changes of $4.0 million and after working capital, operating cash flow which includes receiving grant money of $855 thousand was a deficit of $3.6 million. So the company is still burning cash and will likely need to raise additional capital within a year. The company is expecting to receive another $2.4 million in grants which will help but will likely not be enough.


Looking at the company’s long-term plan. Perimeter is looking to use the S-series OCT as an initial seed for adoption and then leverage that network with the B-series and AI. So the company is spending significant money on marketing but likely won’t get the fruit from any of that marketing until the B-series launch.  The company is looking at completed enrollment for the B-series and Image Assist AI to be completed in Q4 2024, which means the company is almost guaranteed to need additional capital for further development given the current cash burn.


The company like many medical development companies is on a cash-burn-driven timeline and has significant getting-to-market risks. First, the product needs to be viable, and then it needs to be adopted which is why you see such a high marketing and sales expense,  and then needs to scale enough to be profitable or cash flow positive on the cash burn timeline. If the company does beat the odds and does make it to market in a profitable manner I would take another look but for now I would pass given the significant risks.

Looking particular at our AI work, in addition to the many improvements the algorithm itself, Perimeter has a massive, very large proprietary image library, not just in breast cancer, but across other tissue types. With this data set, we can train models in a way that will be very difficult for other companies to replicate. This is the world that I come from and was one of the key things that made me so excited about joining Perimeter.


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