The rise in LXV is reminiscent of the rise seen in Intertainment Media (TSXV:INT) in the first half of 2011 from 10 cents to as high as $3. Should the turn in investor sentiment be permanent, look for other tech companies on the TSXV to rise much like when several companies followed INT's price increase in the spring of 2011.
The companies that benefited from the 2011 bull run included Fireswirl Technologies (TSXV:FSW), SelectCore (TSXV:SCG), iSign Media (TSXV:ISD), Poynt (TSXV:PYN), Ipico (TSXV:RFD) and Futura Loyalty (TSXV:FUT). The latter three companies have since gone bankrupt while INT and SCG have lost nearly all of their market cap. While risks in investing in these companies are apparent, the upside potential is very high just by looking at what LX Ventures has done in the last month. The rise in LXV may be a driver for companies on the edge like SCG and INT to recover their losses in stock price
Having a look at the TSX Venture Microcap Tech Stock Comparison from October, we see that ZoomMed (TSXV:ZMD) and NTG Clarity Networks (TSXV:NCI) joined FSW as the best three financial performers out of 41 of their peers on the TSXV. All three of those companies have since released another quarter of results while SCG and LXV should have theirs coming out soon. Comparing LXV's financials to the top three performers and the surviving members of the rise in 2011 show the following results:
|Revenue last 4Q||4,313||45,574,953||7,372,067||8,735,736||4,354,028||1,133,542||44,103,624|
|Price to Sales||10,041.76||0.25||0.44||1.63||3.42||15.07||0.11|
|Operating profit last 4Q||-779,111||-218,487||2,417,973||3,122,026||-19,672,618||-5,404,817||-6,233,092|
|Operating profit 5-8Q||-301,187||-614,000||-2,431,387||580,329||-25,280,960||-3,947,166||-3,476,848|
|Operating Profit Growth||-159%||64%||199%||438%||22%||-37%||-79%|
|Net earnings last 4Q||-779,056||-501,811||531,900||2,267,510||-25,049,646||-5,293,617||-7,273,595|
|EPS last 4Q||-0.015||-0.010||0.004||0.064||-0.067||-0.068||-0.039|
|Price to Earnings||N/A||N/A||6.16||6.27||N/A||N/A||N/A|
The TSX Venture Tech Stock Data Bank will have the data listed above and will be updated upon completion of the current wave of financial releases going on at this time. In the meantime you can confirm the accuracy of this data by referring to SEDAR. Revenue Last 4Q represents the combined past four quarters of revenue for each company while Revenue 5-8Q shows the revenue for the four quarters prior to that in order to calculate revenue growth (same idea for operating profit). Price to sales is the market cap divided by the past four quarters of revenue while net earnings (operating profit plus any interest, FX and other non-core impacts to the bottom line) is used to calculate EPS and P/E ratio..
LXV's rise in stock price has been based on speculation of future success as revenues from recent quarters are close to nil and the operating losses have been increasing. Their price to sales metric is over 10,000 right now. Compare that to FSW at 0.25 and FSW is 40,000 underpriced relative to LXV by using this metric. LXV's market cap is largely driven by speculation illustrated in this Stockhouse post:
"If Mobio Insider gets even a small percentage of Twitter traffic, our market cap should be well over $1 billion. That would mean a share price of nearly $20! So it's surprising how gradual this climb has been, all things considered."
Assuming a 20x gain in stock price for LXV based on a Twitter comparison is aggressive but apt in this market environment as the NASDAQ has recently crossed over 4,000. Using such a comparison for LXV would mean that using such comparables for the other companies listed above would be fair too. FSW is comparable to E-Commerce China Dangdang (NASDAQ:DANG), as it is a larger eCommerce company in China with a $750M market cap and $950M in annual revenue. FSW has over $45M in annual revenue from their Chinese eCommerce activities, 4.7% of DANG's revenue. Assuming 4.7% of DANG's market cap, that would value FSW at a $35M market cap, or over 70 cents a share. This comparable is based off of FSW's revenue today as opposed to LXV's potential for revenue in the future. FSW should be worth a much higher percentage of DANG's market cap when looking into the future because of FSW's strong revenue growth of 121% when comparing the last four quarters to the four quarters previous to them. See FSW's Q3 news release which shows that their revenue increased 128% for Q3 and 115% year-to-date. While LXV has been gaining traction signing up celebrities under their Mobio subsidiary, FSW has grown based on its partnership with an eBay subsidiary to expand eBay's eCommerce solutions into China.
NCI and ZMD also have clear upside when comparing their financial performance to LXV. These two companies are the only ones of the group listed above that have a positive EPS over the past year and their price to earnings metric are very low at just over 6. NCI has shown tremendous financial improvement in every quarter as it executes its strategy after signing several lucrative contracts earlier this year. There really can be no debate that NCI is the stronger company financially over LXV at this moment.
ZMD makes a prime buyout target with a market cap of under $3.3M and revenues of over $7M in the past four quarters. Unlike NCI their quarterly performance has been inconsistent and the last financial release disappointed the market so the stock price has been driven down to very cheap levels. The ZoomMed Communication Network is a clinical interoperable information exchange network between physicians and the various other stakeholders of the healthcare sector. Compare that to LXV's purchase of Sosido Networks in May:
"The completion of this acquisition marks another significant milestone in LX Ventures' high growth strategy of launching, acquiring and integrating early stage high growth technology companies poised for breakout in the HealthTech, AdTech, and FinTech verticals. Leading the HealthTech vertical, Sosido is an online knowledge exchange community for physicians, nurses, pharmacists and other healthcare professionals. It uses innovative technology to connect and filter knowledge through trusted colleagues, creating a unique communication platform that revolutionizes the way health care professionals share information and collaborate with each other. In the most recent fiscal quarter, Sosido's user base tripled, with commitments in place to grow 10x by the end of the next quarter. Management expects this growth to accelerate further now that Sosido is supported by the expertise and resources of the LXV group.
"We are very excited to close this acquisition, as Sosido marks our first investment and acquisition in the highly disruptive HealthTech vertical. Expect to see further consolidation in this sector as large traditional bricks and mortar organizations seek to innovate their business units just as other industries have done," said Mike Edwards, CEO of LX Ventures."
The similarities between ZMD and Sosido are undeniable. Neither company is strong enough to cannibalize the other, so buying one out would be the easiest way to gain good market share in the increasingly strong niche of social media in the medical world. LXV has recently bought more companies in an attempt to quickly expand its network . Given ZMD's low market cap, high revenues and LXV's willingness to be an aggressive purchaser of other companies, ZMD could be on their list. Adding ZMD's recent revenues to the LX Ventures conglomerate would be a big step forward in terms of improving their financials as well as providing future great revenue growth.
LXV may be worth every penny of its increase in market cap over the past month. But that means FSW, NCI and ZMD are also worth just as much as they have speculative upside and current strong financial performance to back them up. Yet all three are at a mere fraction of LXV's current value. INT, ISD and SCG could be good turn around momentum plays should LXV execute on their strategies and continue to rise, bringing up all related companies with it. The entire TSX Venture tech sector will have some much deserved life put back into it and there is no telling how high these laggards could recover if they are able to solve any working capital issues they currently have.