ZKL Spikes on Outstanding Financial Results


January 1, 2014 - China Keli Electric Company Ltd. (TSXV:ZKL), rose an outstanding 400% yesterday on 665K shares traded, the highest ever daily volume for the company, thanks to the release of their Q2 financial results ended October 31 which included a 33% increase to revenues and 50% increase to net profit. This financial release appears to have been a tipping point for the company as it has always traded at an extreme discount to its revenue and net income.

Through its subsidiary Zhuhai Keli, ZKL develops, designs, manufactures and markets high-voltage switches, breakers, auto-control equipment, high voltage complete electric sets and high-power resistors for China's power industry. The record setting revenue growth and strong increase in profits is assisted by China Keli's Product Manufacturing/Sales License Agreement with Siemens signed in April 2013. The agreement not only stimulates revenue growth today, but should shore up future revenue growth as the contract calls for substantial increases to the sales targets over the next four years. From the NR:

"The agreement, which will be renewed annually provided Keli complies with the terms, recognizes that Keli has appropriate high quality manufacturing facilities and quality control procedures to comply with the stringent requirements for the manufacture of Siemens-designed electrical equipment. Siemens and Keli have agreed to some production and sales targets, which increase substantially over the first four years of the agreement, and will bring increased revenues to both companies."

A summary of ZKL's income statement can be seen below:

ZKL FY 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 FY 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 FY 2013 Q1 2014 Q2 2014
Product Revenue 14,789,775 4,473,675 3,216,377 14,121,450 4,364,610 4,621,420
Service Revenue 276,786 303,197 1,311,426 3,166,566 979,581 1,414,794
Revenue 15,278,059 4,054,351 4,055,778 2,625,393 4,331,039 15,066,516 4,776,872 4,527,803 2,967,761 5,015,580 17,288,016 5,344,191 6,036,214
Cost of Goods Sold 9,020,376 2,409,549 2,377,265 1,788,347 2,773,266 9,348,382 3,096,234 2,995,604 1,891,348 3,356,785 11,339,971 3,682,301 4,116,633
Gross Margin 6,257,683 1,644,802 1,678,513 837,046 1,557,773 5,718,134 1,680,638 1,532,199 1,076,413 1,658,795 5,948,045 1,661,890 1,919,581
Gross Margin % 41.0% 40.6% 41.4% 31.9% 36.0% 38.0% 35.2% 33.8% 36.3% 33.1% 34.4% 31.1% 31.8%
Operating Expenses 6,368,872 1,170,220 1,177,328 1,470,615 1,305,419 5,123,582 1,194,949 1,271,462 1,447,562 1,242,242 5,156,215 1,179,863 1,504,925
Operating Profit -111,189 474,582 501,185 -633,569 252,354 594,552 485,689 260,737 -371,149 416,553 791,830 482,027 414,656
Operating Margin % -0.7% 11.7% 12.4% -24.1% 5.8% 3.9% 10.2% 5.8% -12.5% 8.3% 4.6% 9.0% 6.9%
Net Profit -765,014 380,872 343,144 -603,461 223,138 343,693 289,446 143,897 -386,691 393,835 440,487 254,972 216,640
Profit Margin % -5.0% 9.4% 8.5% -23.0% 5.2% 2.3% 6.1% 3.2% -13.0% 7.9% 2.5% 4.8% 3.6%
YoY Revenue Growth % -1.4% 17.8% 11.6% 13.0% 15.8% 14.7% 11.9% 33.3%
YoY Operating Profit Improvement 634.7% 2.3% -48.0% 41.4% 65.1% 33.2% -0.8% 59.0%
Income Attributed to Common Shareholders -1,088,801 604,568 1,059,510 -357,438 -16,021 1,290,619 355,615 421,432 -354,364 652,070 1,074,753 675,841 541,225

The company recently split out product and service revenue within their reporting. While product revenue has remained relatively flat, it is the installation service revenue that has seen strong growth from less than $277K for the full fiscal year of 2012 to nearly $3.2M for fiscal year 2013. But Q2 2014 saw a 44% jump in product revenue from $3.2M to $4.6M, shortly after the Siemens agreement was signed. Gross margins have been trending downwards but overall profit margins have been about flat as operating expenses have remained steady even as revenue grows.

The last four quarters saw $19.4M in revenue, $942K of operating profit, $479K of net profit and $1.5M of comprehensive income used to calculate an EPS of  1.7 cents per share. Comprehensive income is greatly assisted by the rising RMB versus the Canadian dollar since 2012. Excluding currency effects the EPS is 0.5 cents per share. All of these numbers compare very favourably versus the company's market cap of $9M at 10 cents per share. The price to earnings ratio is reasonably low, ranging from 6 to 20 while the price to sales ratio is very low at 0.47 despite the stock price quintupling overnight.

For the four quarters from Q3 2012 to Q2 2013, revenue was $16.2M so the trailing 12-month revenue saw an increase of 19% to $19.4M. Operating profit grew from $365K to $942K while net profit grew from $53K to $479K. The largest driver of the earnings growth is the vastly improved Q3 which is seasonally the worst quarter for the company and is the only one in which the company still loses money. Given the strong increase in net income, the steadily growing increase in revenue in the last quarter and the Siemens deal, ZKL should be valued at much higher metrics than a 20 P/E or 0.47 P/S. Click here to see the Reuters comparison of ZKL to its industry and sector as summarized in the charts below.

Although these numbers are not yet updated for the Q2 release (for instance the P/S metric of 0.51 includes Q2 2013 instead of Q2 2014), they tell a very clear story of the company being undervalued by multiple times when compared to its industry and sector of electrical components/equipment in Asia. ZKL's price to sales ratio is 7 times lower than the industry and 62 times lower than the sector. The P/E ratio of 22.27 is more than three times lower than the industry of 72.87 and over 100 times lower than the sector. Even when looking at balance sheet results, ZKL's tangible price to book value is 0.55, more than 6 times lower than the industry and 4 times lower than the sector. Price to cash flow is the only metric in which ZKL appears to be appropriately priced versus the market as the accounts receivable for the company is high relative to its size.

The company's growth rates (Most Recent Quarter and Trailing Twelve Month) from Reuters shows that it is in line with the industry for top line sales and superior its sector by 3-4x. However, the Reuters' most recent quarter shows the weaker Q1 results of 11.9% growth in revenue and not the 33% seen in Q2. As calculated above the latest TTM revenue growth rate is 19% while the net profit growth rate of $479K from $53K implies a far superior 803% earnings growth, but that number is assisted by having a very small denominator.

Consider that all of the previous analysis has taken place after the company already improved from 2 cents to 10 cents. The sector analysis includes all Asian companies so while stronger Japanese and Korean companies offset some of the impact, other Chinese companies which are supposedly susceptible to fraud are also included in the group and yet ZKL was very cheaply priced even relative to them.

Why has ZKL been priced so low for so long? Similar Chinese companies trading in the US like China Electric Motor, Inc. (CELM) were found out to be frauds in 2010 and 2011 and trade at very low multiples compared to their reported numbers which in all likelihood are inaccurate. Canadian investors are particularly sensitive thanks to the financial shenanigans uncovered at Sino Forest which eventually led the company to becoming delisted. ZKL has been discounted to an extreme amount due to the misdeeds of others despite the fact that no one has ever accused them of wrongdoing more than two years after the allegations against CELM, TRE and others came to light. With continued reporting and the contract with Siemens it looks more likely that ZKL is a legitimate company with strong current earnings potential and great growth prospects. There is no reason to discount it to such an extent where its price practically assumes it is a fraud. Each individual investor should evaluate their own risk tolerance for Chinese companies, however there is no evidence to suggest that ZKL is involved in any wrongdoing.

Given the superior growth metrics and far superior value metrics, it is reasonable to assume a target where ZKL should be 10 times its current price. Nonetheless, TSX Tech News and Analysis will discount this target by 50% to account for the higher risk of this tainted sector to come to a 50 cent price target for ZKL. Even at 5 times the price, the P/S of around 2.5 and the P/E ratio of around 100 show a company that is conservatively valued versus its peers.

China Keli Announces Product Manufacturing/Sales License Agreement with Siemens

From tsx.com:

VANCOUVER, BRITISH COLUMBIA--(Marketwired - April 9, 2013) - China Keli Electric Co., Ltd. (TSX VENTURE:ZKL) ("Keli" or the "Company") is pleased to announce that it has signed a Product Manufacturing and sales license agreement with Siemens Ltd., China.
This agreement involves disclosure of Siemens-owned intellectual property to Zhuhai Keli Electric Co Ltd., the operating subsidiary of Keli, and conveys to Keli the right to manufacture and sell the Siemens-designed SIVACON 8PT switchgear. It acknowledges that Keli is an authorized licensee of Siemens for the LV SIVACON switchboards. The agreement, which will be renewed annually provided Keli complies with the terms, recognizes that Keli has appropriate high quality manufacturing facilities and quality control procedures to comply with the stringent requirements for the manufacture of Siemens-designed electrical equipment. Siemens and Keli have agreed to some production and sales targets, which increase substantially over the first four years of the agreement, and will bring increased revenues to both companies.
"We are proud and honored to be chosen by Siemens, which is so well known for its innovative and high-quality products, and to be authorized for the manufacture of their SIVACON 8PT products," said Lou Meng Cheong, Keli's CEO. "This agreement will increase Keli's market competitiveness in our core business, and help to make a meaningful contribution to revenues and corporate earnings."
"Keli has always focused on quality and innovation," said Madame Wong, Keli's Chairperson, "and we are very pleased to be working with Siemens which has similar product design and manufacturing values."
About China Keli Electric Company Ltd.
China Keli Electric Company Ltd. specializes in the manufacturing of electrical components and equipment, including pre-assembled mini substations, electrical controllers, pressurized and vacuumed switchgear and circuit breakers.
This press release contains forward-looking statements based on current expectations. These forward-looking statements entail various risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Risks and uncertainties about Keli's business are more fully discussed in the Company's disclosure materials filed with the securities regulatory authorities in Canada. All amounts are stated in Canadian dollars unless noted otherwise.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this press release.
Contact Information:
China Keli Electric Company Ltd.
Michael Raymont
EVP Finance and Corporate Development
(403) 389-3488

China Keli Announces Q2 2014 Results -- Quarterly Year-over-Year Revenues and Profit Up 33.3% and 50.6%, and Six Month Year-over-Year Revenue Up 22.3%

From tsx.com:

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Dec. 31, 2013) - China Keli Electric Co., Ltd. (TSX VENTURE:ZKL) ("Keli" or the "Company") today announced the financial and operating results for the three and six months ended October 31, 2013.
For the three months ended October 31, 2013 ("Q2 2014"), total revenue was $6,036,214, an increase of 33.3% over Q2 2013 of $4,527,803. Product sales were the key driver of the revenue increase, but the installation service business continues to grow also. The Company recorded $4,621,420 product sales revenue, an increase of 43.7% from 3,216,377 in Q2 2013. The installation service revenue increased 7.9% to $1,414,794 from Q2 2013 of $1,311,426. Gross profit in Q2 2014 was $1,919,581, an increase of 25.3% over Q2 2013 of $1,532,199. The revenue increase was driven by ongoing investment in marketing and R&D to develop new customers and products. This additional investment increased operating expenses from $1,271,462 in Q2 2013 to $1,504,925 in Q2 2014. As a result, the Company's net profit was $216,640 in Q2 2014 compared to $143,897 in Q2 2013, and increase of 50.6%. Basic and diluted earnings per share ("EPS") were $0.002. EBITDA was $556,988 in Q2 2014, an increase of 48.6% over $374,860 in Q2 2013. After accounting for an unrealized foreign exchange translation gain of $324,585, the Company reported total comprehensive income of $541,225 in Q2 2014, compared with total comprehensive income of $421,432 in Q2 2013. The Company's unrealized foreign exchange income on translation of the Group's functional currency to its reporting currency is subject to fluctuations in the exchange rate between the RMB and the Canadian dollar in each reporting period.
For the 6 months of FY2014, total revenue was $11,380,405, an increase of 22.3% over $9,304,675 for the equivalent 6 month period in FY2013. The Company recorded a net profit of $471,612 in the first 6 months of FY2014, compared to $433,343 in same period in FY2013. Or the 6 months of FY2014 comprehensive net income jumped 56.6% over the same period in FY2013.
"We're pleased to report continued revenue and profit improvements in our operations", said Lou Meng Cheong, Keli's CEO, "Our re-engineering of the business in the last two years is clearly paying off, and we expect this trend to continue".
As of October 31, 2013, the Company had total cash and cash equivalents of $1,196,391 compared with $1,186,364 as of April 30, 2013. Accounts receivable were $12,982,763 as at October 31, 2013, an increase of $3,190,899 compared with $9,791,864 as at April 30, 2013. The Company's working capital increased to $8,380,909 as at October 31, 2013 from $8,195,776 as at April 30, 2013.
The functional currency of the Company and its subsidiaries is Chinese Yuan (also known as "Renminbi" or "RMB"). The financial and operating results of the relevant periods have been translated into Canadian dollars. Depending on the magnitude of changes in foreign currency exchange rates, the impact on the financial and operating results may or may not be material.
Full financial results of the Company for the three and six months ended October 31, 2013 are available on SEDAR atwww.sedar.com.
About China Keli Electric Company Ltd.
China Keli Electric Company Ltd. specializes in the manufacturing of electrical components and equipment, including pre-assembled mini substations, electrical controllers, pressurized and vacuumed switchgears and circuit breakers.
For further company information please access our website: www.zkl.cc.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this press release.
This press release contains forward-looking statements based on current expectations. These forward-looking statements entail various risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Risks and uncertainties about Keli's business are more fully discussed in the Company's disclosure materials filed with the securities regulatory authorities in Canada. All amounts are stated in Canadian dollars unless noted otherwise.
China Keli Electric Co. Ltd.
Michael Raymont
EVP Finance and Corporate Development
(403) 389-3488

TSX Venture Microcap Tech Stock Comparison

The TSX Venture has struggled as many small gold, oil and other explorers have had their stock prices hammered down over the last two years. This makes sense as the price of gold has sunk while many senior metals companies around the world both big and small have tanked in the past two years as well. What makes much less sense is how the struggles of the TSXV has also brought down the small cap tech sector on the exchange. The NASDAQ has recently crossed the 4,000 mark for the first time in 13 years so tech stocks on other exchanges are doing well.

The lack of appetite for small cap techs on the Venture may stem from many investors having been burnt on 2011's most popular pump and subsequent crash Intertainment Media. The struggles of large cap companies of yore like Nortel and more recently BlackBerry also can be to blame for lack of interest in Canadian tech companies. But much of the problem lies with the fact that these stocks are not covered by mainstream analysts and most people simply do not know about them or their potential. TSX Tech News And Analysis has put together a detailed analysis of the TSXV tech industry in order to stimulate interest in the top performers in this sector. This analysis is a follow up to the one done back in October, with Q3 stats for every company now available it was an appropriate time to update it.

Click here to see the details of all the technology stocks listed on the TSX Venture. There are 106 tech companies listed on the Venture with a combined value of over $1.6 billion in market cap, a list of those companies can be seen here (opens a Microsoft Excel worksheet).

Out of the 106 companies, 41 of them were deemed appropriate for this analysis. Three criteria were used in determining this list. First, each stock must have had sufficient amount of financial and trading data, so some newer listings did not make the cut. They will make the cut in the future when they have more data. Second, a cut off of around $60M in market cap was decided based on the fact that the purpose of this is to compare uncovered microcap stocks. There's a fairly large gap between the largest companies that made this list of around $50-$60M in size and the five that did not make the list that were all $80M in size and above. Those larger ones may have more appropriate peers on the big board on the TSX. Finally, each company must have had adequate trading volume and liquidity. It makes no sense to compare a stock if it has only 100,000 shares in volume per month with a huge bid-ask spread. You can't buy into that type of stock without vastly overpaying on the thin ask. These are the 41 companies that made this list by name, symbol, shares outstanding, stock price as of December 9, 2013 and resulting market cap:

NameSymbolSharesStock Price Market Cap 
Ackroo Inc.AKR57,144,1330.18     10,285,944
Avante Logixx Inc. XX55,983,8430.275     15,395,557
Cortex Business Solutions Inc.CBX259,213,2270.17     44,066,249
Digital Shelf Space Corp. DSS24,052,5310.16       3,848,405
E.S.I. Environmental Sensors Inc.ESV154,530,6280.055       8,499,185
Enablence Technologies Inc. ENA157,516,8900.135     21,264,780
ePals CorporationSLN106,448,2580.055       5,854,654
Extenway Solutions Inc.EY136,656,7940.09     12,299,111
Fireswirl Technologies Inc. FSW50,071,2850.245     12,267,465
GINSMS Inc.GOK51,537,4990.145       7,472,937
Intertainment Media Inc. INT372,477,2790.035     13,036,705
iSign Media Solutions Inc.ISD77,638,6850.19     14,751,350
Las Vegas From Home.com EntertainmentLVH91,505,2040.08       7,320,416
LX Ventures Inc.LXV60,755,6180.73     44,351,601
Magor CorporationMCC51,725,4890.32     16,552,156
Medworxx Solutions Inc.MWX26,777,5810.35       9,372,153
Nightingale Informatix CorporationNGH76,310,9150.22     16,788,401
NTG Clarity Networks Inc.NCI35,643,8910.42     14,792,215
Odesia Group Inc.ODS39,750,4900.06       2,385,029
OPSENS Inc. OPS47,925,9830.78     37,382,267
Photon Control Inc.PHO102,358,5180.265     27,125,007
POET Technologies Inc.PTK132,676,1150.54     71,645,102
ProntoForms CorporationPFM67,053,5730.09       6,034,822
QHR CorporationQHR47,162,6901.20     56,595,228
Quorum Information Technologies Inc.QIS39,300,6370.075       2,947,548
Route1 Inc. ROI382,009,9140.045     17,190,446
Sangoma Technologies CorporationSTC28,829,8090.21       6,054,260
SelectCore Ltd.SCG187,378,5480.02       3,747,571
Sensio Technologies Inc.SIO66,019,3420.08       5,281,547
Sprylogics International Corp.SPY27,347,7060.54     14,767,761
Star Navigation Systems Group Ltd.SNA261,586,9660.055     14,387,283
The Mint CorporationMIT26,927,5130.03           807,825
Times Three Wireless Inc.TTW91,982,1450.025       2,299,554
TIO Networks CorpTNC46,617,3400.46     21,443,976
TransGaming Inc.TNG85,404,4050.17     14,518,749
Valdor Technology International Inc.VTI79,903,7200.125       9,987,965
Versatile Systems Inc. VV157,285,6430.05       7,864,282
VIQ Solutions Inc.VQS90,957,0000.055       5,002,635
Wanted Technologies CorporationWAN24,159,3261.23     29,715,971
Wi2Wi CorporationYTY81,548,6880.20     16,309,738
ZoomMed Inc. ZMD130,983,4730.035       4,584,422

While this list was not altered from the first time this analysis was done, one company that stands out as an interesting tech play is Pivot Technology Solutions (PTG.V). They listed through an amalgamation agreement with Acme Capital in March 2013 so it hasn't been listed long enough to make the cut. The company's Q3 financials shows that it is has achieved $326M in revenue year-to-date and pulling a small profit of $1.6M for the quarter. With only a $18M market cap, it has a very low Price to Sales ratio. On the flip side, the company's working capital is massively negative. It's also very unusual for an American company to do an RTO to get listed on the Venture without having an OTC symbol in the US. TSX Tech News And Analysis will continue to follow this stock and add it to this comparison in the near future.

Other Q3 highlights include:

NCI having over 170% revenue growth for Q3 along with nearly $800K in profits as it fulfills its contracts signed earlier this year.

FSW grew revenue 128% for Q3, from $6.4M to $14.6M.

PHO has a record quarter with 93% in revenue growth and over $1.1M in net income, tripling Q3 2012's result.

XX and WAN continued to show strong and sustained profits and margin improvements on decent revenue growth.

SCG recorded a small profit of $37K in net income as operating margin improved to 1.8% despite a 50% decline in revenue from Q3 2012. It looks like they have finally found their profitable niche providing prepaid card solutions to various levels of government as they quickly cast away the old business. Through the magic of math their ranking this time around did not improve versus their ranking in October despite these steps forward. If the company continues to show this improvement, they will rise up quickly in this ranking.

ZMD is like a mirror image to SCG. Their last quarter was disappointing with revenue being cut nearly in half from the same quarter a year ago and a net loss of close to $1M. Yet thanks to the strength of their previous quarters, they still take the top spot in the comparison as revenue growth is still great and the company shows positive earnings for the last four quarters.

Other companies that disappointed include:

INT with $800K in revenue which was down 37% from the prior year's quarter. That revenue figure was the lowest INT had in any quarter since it became a household name in early 2011.

TNC with a net income loss of $570K that took them to negative earnings for their fiscal year.

NGH also lost money in Q3, turning their company into a money-loser for the last four quarters.

On another interesting note, LXV recorded revenue for the first time in the last four quarters after all their acquisitions but put up a big loss.

Summary of Results

All the financial data that was used to analyze these companies can be seen here. Great care has been taken to ensure the accuracy of this data, however as a mix between manual and automatic processes have been used, some numbers may be subject to human error. Always confirm the accuracy of the numbers yourself before basing investment decisions off of them.

Four aspects have been used in order to rank these 41 companies. They are value, growth, profitability and sustainability. Value ranks how cheap or expensive a stock is compared to its market cap and to its peers. The value metric used was the Price to Sales ratio. Revenue growth which compared the previously reported four quarters to the four quarters reported prior to them was used. Operating margin, which is each company's operating profit (or loss) expressed as a percentage of their revenue. Sustainability is each company's ability (or lack thereof) to maintain operations without the need to finance, dilute or go into bankruptcy. A point system was used where the company that finishes first on the list gets one point while the company that finishes last gets 41. After tallying up the four sections, this is the order in which the 41 stocks get ranked, along with the previous (prv) score and ranking for each company from back in October and the change from the last one to this one. The lower the score is, the better:

RankNameValueGrowthMarginSustainabilityTotalPrv TotalChangePrv Rank
1ZoomMed Inc. 113272322-11
2NTG Clarity Networks Inc.165132539143
3Fireswirl Technologies Inc. 541011303332
4Photon Control Inc.1913413749128
5Avante Logixx Inc. 1811543848107
6Wanted Technologies Corporation241532444736
7QHR Corporation1717654542-34
8Quorum Information Technologies Inc.82188455499
9VIQ Solutions Inc.62613105556110
10TIO Networks Corp102511125847-115
11Sangoma Technologies Corporation9281295862412
12ProntoForms Corporation14920165968916
13TransGaming Inc.1310162362741217
14Odesia Group Inc.21814296368515
15Route1 Inc. 2033766664-213
16GINSMS Inc.26223257677118
17Versatile Systems Inc. 42915307880220
18Nightingale Informatix Corporation12319288057-2311
19ePals Corporation71226388378-519
20Medworxx Solutions Inc.152718268667-1914
21Cortex Business Solutions Inc.281422228690424
22iSign Media Solutions Inc.32631198889123
23SelectCore Ltd.13817338988-122
24The Mint Corporation32228368995625
25OPSENS Inc. 273019149082-821
26Ackroo Inc.3183224951051031
27POET Technologies Inc.38137209696028
28Digital Shelf Space Corp. 223524179895-327
29Enablence Technologies Inc. 21362518100109932
30Magor Corporation30242721102101-130
31Wi2Wi Corporation252321341031141134
32Extenway Solutions Inc.3373537112100-1229
33Sensio Technologies Inc.293733151141311738
34Sprylogics International Corp.3416343111595-2026
35E.S.I. Environmental Sensors Inc.35192932115120536
36Valdor Technology International Inc.37203627120123337
37Intertainment Media Inc. 23323039124117-735
38LX Ventures Inc.413439131271391239
39Times Three Wireless Inc.36393841154152-240
40Star Navigation Systems Group Ltd.40404135156113-4333
41Las Vegas From Home.com Entertainment39414040160158-241

Looking at this list we can see that the top 3, ZMD,  chosen by TSX Tech News And Analysis at 6 cents, NCI, chosen by TSX Tech News And Analysis at 16 cents in June and FSW, chosen by TSX Tech News And Analysis at 9 cents in July, rank #1-3 on this list.

NCI overtook FSW for the number two spot despite FSW improve 3 basis points as NCI improved 14 basis points thanks to the strong revenue growth. Even under the Price to Sales value metric, NCI does well now. As noted above, ZMD's weak latest quarterly report did not punish its ranking. It will be interesting to see if the last quarter was an aberration or if it will face continued pressure for the #1 spot on this ranking in the future.

Some may say that the data is biased because the stocks at the top are TSX Tech News And Analysis picks. But the financial data is straight from their reports and the four metrics used to evaluate the companies and the methods in which to calculate them are apt. Some people may use slight variations in metrics and methods of ranking but all three of these companies would do well no matter what. In some ways the TSX Tech News And Analysis rankings can undervalue these companies as FSW has a far better P/S then other companies ranked a few spots below. Any of the stocks in the top 10 of this ranking are worth a look by those interested in the sector.

Looking at some other stocks on this list, we see companies like SelectCore and Odesia represent great value but struggle in growth and profitability. On one hand their great value indicator is based on revenues and margins which are in decline as their businesses are struggling or they are in the midst of a transformation. On the other hand, a slight turnaround in their fortunes can see these stocks have great upside potential.

On the opposite end of the spectrum are companies like POET Technologies, Sprylogics and iSign Media which rank well in growth but very poorly on value and margin metrics. Some may say that the value in these businesses lie in their technology or patents that they own. But as we have seen with BlackBerry, technology may not be given the value some expect. Particularly in the case of PTK where they already discontinued their solar business and rely on their semiconductor business where the company will need to continuously upgrade its technology in order to compete in the long term. Until those businesses can gain traction and monetize, they will continue to do poorly on the value and profitability metrics. On the flip side, revenue growth is very strong on a small base and the companies have no immediate sustainability issues as they all have recently been able to do major financing which means there is large venture capital dollars out there that see value in their various technologies.

Finally there are companies like Las Vegas From Home.com Entertainment and Intertainment Media which rank near the bottom in all categories. Most shareholders of these ones would not argue with these rankings as their poor financial performance has resulted in poor stock price returns. Certain companies like Ackroo and LX Ventures are in the process of growing a newly developed business. They may rank poorly now, but there is some hope in their subsequent news releases that revenue may be forthcoming which will help them in future rankings.


To determine value the Price to Sales metric was used. Price to Earnings is the most popular method in which evaluate tech stocks, however given that most of these companies do not earn a profit the P/S ratio is a more appropriate one in which to evaluate the full spectrum of these 41 stocks. A company's earning power is taken into consideration in the profitability and sustainability sections. Two straightforward articles that go into detail as to why the P/S ratio is the most appropriate for tech stocks can be seen here and here.

NameMarket CapRevenue TTMP/SRank
SelectCore Ltd.3,747,57136,152,469           0.101
Odesia Group Inc.2,385,02914,142,863           0.172
The Mint Corporation807,8254,483,133           0.183
Versatile Systems Inc. 7,864,28234,996,520           0.224
Fireswirl Technologies Inc. 12,267,46545,574,953           0.275
VIQ Solutions Inc.5,002,63514,424,183           0.356
ePals Corporation5,854,65416,349,709           0.367
Quorum Information Technologies Inc.2,947,5487,782,715           0.388
Sangoma Technologies Corporation6,054,26012,674,147           0.489
TIO Networks Corp21,443,97640,456,886           0.5310
ZoomMed Inc. 4,584,4227,372,067           0.6211
Nightingale Informatix Corporation16,788,40117,823,396           0.9412
TransGaming Inc.14,518,74910,038,832           1.4513
ProntoForms Corporation6,034,8223,701,680           1.6314
Medworxx Solutions Inc.9,372,1535,694,531           1.6515
NTG Clarity Networks Inc.14,792,2158,735,736           1.6916
QHR Corporation56,595,22833,343,976           1.7017
Avante Logixx Inc. 15,395,5578,271,049           1.8618
Photon Control Inc.27,125,00713,119,848           2.0719
Route1 Inc. 17,190,4466,184,833           2.7820
Enablence Technologies Inc. 21,264,7807,038,000           3.0221
Digital Shelf Space Corp. 3,848,4051,265,694           3.0422
Intertainment Media Inc. 13,036,7053,878,642           3.3623
Wanted Technologies Corporation29,715,9717,640,610           3.8924
Wi2Wi Corporation16,309,7384,102,000           3.9825
GINSMS Inc.7,472,9371,653,243           4.5226
OPSENS Inc. 37,382,2677,526,422           4.9727
Cortex Business Solutions Inc.44,066,2496,164,138           7.1528
Sensio Technologies Inc.5,281,547591,971           8.9229
Magor Corporation16,552,1561,766,052           9.3730
Ackroo Inc.10,285,9441,059,919           9.7031
iSign Media Solutions Inc.14,751,3501,133,542         13.0132
Extenway Solutions Inc.12,299,111386,420         31.8333
Sprylogics International Corp.14,767,761292,495         50.4934
E.S.I. Environmental Sensors Inc.8,499,185149,602         56.8135
Times Three Wireless Inc.2,299,55434,000         67.6336
Valdor Technology International Inc.9,987,965131,813         75.7737
POET Technologies Inc.71,645,102388,720       184.3138
Las Vegas From Home.com Entertainment7,320,41619,129       382.6939
Star Navigation Systems Group Ltd.14,387,28312,036   1,195.3540
LX Ventures Inc.44,351,60131,026   1,429.5041
Total656,298,273386,589,000           1.70

Looking at the total sum of these companies, $656M in total market cap gives you $387M in revenue for a total P/S ratio of 1.70. That's up from October's result of 1.54 as the Venture tech companies have been gaining traction in the markets but comparing this figure to some of the most popular NASDAQ stocks, we see that Amazon has a P/S of over 2, Tesla Motors has a P/S of 10, Zynga has a P/S of over 3, and Google has a P/S of over 6. When compared to these companies the Venture tech stocks look undervalued as usually start up companies and small caps are supposed to have higher P/S metrics when compared to their larger counterparts.

Fireswirl ranks extremely well on this list at #5. Note that the four companies above FSW show poor revenue growth and mediocre margins, so the market ranks them very low in market cap relative to their revenue. With that in mind, a company like SelectCore with only a 0.10 P/S certainly has a chance to provide shareholders who have a strong will and very high risk tolerance with outstanding gains should the business turn around before it gets into severe financial difficulty.

Despite the rather low 1.70 P/S for the industry, FSW at 0.27 and ZMD at 0.62 are significantly cheaper compared to that average with ZMD needing to nearly triple in stock price and FSW needing to increase over 6 times just to come to the average. NCI ranks average with a 1.69 P/S but with such strong margins and good revenue growth, its P/S should be compared to the bigger players on the NASDAQ.


The growth metric compares trailing 12-month revenue (Revenue TTM) to the amounts reported in the four quarters prior to that (Revenue 13-24 mo). Each company is ranked by their percentage gain but the dollar amount of growth is also provided for comparison purposes.

NameRev 13-24 moRevenue TTMGrowth %$ GrowthRank
POET Technologies Inc.119,700388,720224.7%269,0201
GINSMS Inc.629,6771,653,243162.6%1,023,5662
ZoomMed Inc. 3,074,7437,372,067139.8%4,297,3243
Fireswirl Technologies Inc. 20,639,64145,574,953120.8%24,935,3124
NTG Clarity Networks Inc.4,330,5398,735,736101.7%4,405,1975
iSign Media Solutions Inc.570,0161,133,54298.9%563,5266
Extenway Solutions Inc.198,619386,42094.6%187,8017
Ackroo Inc.498,335877,11276.0%378,7778
ProntoForms Corporation2,288,0883,701,68061.8%1,413,5929
TransGaming Inc.6,735,43910,038,83249.0%3,303,39310
Avante Logixx Inc. 5,862,2458,271,04941.1%2,408,80411
ePals Corporation12,602,42416,349,70929.7%3,747,28512
Photon Control Inc.10,241,53013,119,84828.1%2,878,31813
Cortex Business Solutions Inc.4,977,9426,164,13823.8%1,186,19614
Wanted Technologies Corporation6,286,3567,640,61021.5%1,354,25415
Sprylogics International Corp.238,155292,49522.8%54,34016
QHR Corporation27,987,16233,343,97619.1%5,356,81417
Odesia Group Inc.11,956,03514,142,86318.3%2,186,82818
E.S.I. Environmental Sensors Inc.126,556149,60218.2%23,04619
Valdor Technology International Inc.126,699131,8134.0%5,11420
Quorum Information Technologies Inc.7,691,9467,782,7151.2%90,76921
The Mint Corporation4,441,4554,483,1330.9%41,67822
Wi2Wi Corporation4,115,0004,102,000-0.3%-13,00023
Magor Corporation1,783,1631,766,052-1.0%-17,11124
TIO Networks Corp42,247,60140,456,886-4.2%-1,790,71525
VIQ Solutions Inc.15,067,73014,424,183-4.3%-643,54726
Medworxx Solutions Inc.6,004,3315,694,531-5.2%-309,80027
Sangoma Technologies Corporation13,766,36012,674,147-7.9%-1,092,21328
Versatile Systems Inc. 38,378,02434,996,520-8.8%-3,381,50429
OPSENS Inc. 8,461,9307,526,422-11.1%-935,50830
Nightingale Informatix Corporation21,097,85317,823,396-15.5%-3,274,45731
Intertainment Media Inc. 4,728,6063,878,642-18.0%-849,96432
Route1 Inc. 8,174,2236,184,833-24.3%-1,989,39033
LX Ventures Inc.45,01831,026-31.1%-13,99234
Digital Shelf Space Corp. 1,883,9071,265,694-32.8%-618,21335
Enablence Technologies Inc. 10,612,0007,038,000-33.7%-3,574,00036
Sensio Technologies Inc.991,130591,971-40.3%-399,15937
SelectCore Ltd.68,664,88736,152,469-47.3%-32,512,41838
Times Three Wireless Inc.178,00034,000-80.9%-144,00039
Star Navigation Systems Group Ltd.171,94012,036-93.0%-159,90440
Las Vegas From Home.com Entertainment386,05419,129-95.0%-366,92541

ZMD is third in terms of  revenue growth with a 140% gain while FSW ranks 4th and NCI 5th. What stands out for FSW is the dominance in terms of its dollar figure in revenue growth in addition to the percentage. It's one thing to quadruple in revenue from 100K to 400K like PTK did. It's quite another for a company to more than double its revenue from $21M to $46M like FSW did. Out of these 41 companies revenue rose a combined total of $8M. FSW makes up $25M of that. QHR comes in second in dollar revenue growth at $5.3M. FSW grew more in revenue than what 36 of these 40 other companies have in total revenue, with many of them having larger market caps than FSW.

While a 2.1% revenue growth appears very mediocre for the industry, a lot of that has to to with the companies that rank at the top of the P/S value metric with SCG and VV accounting for a $36M decline. The growth section and the margin section expose the weakness that relying solely on the P/S ratio for stock valuation can have. A low P/S like what FSW has based off of improving margins and strong revenue growth are much superior to even lower P/S stocks like VV where margins and growth are currently going in the wrong direction.


Operating margin is used calculate the margin for each company below. Operating margin differs from the comprehensive income to shareholders which may include accounting differences for minority interest, discontinued operations, taxes or gains and losses from exchange rates. Comprehensive earnings are what shareholders ultimately get paid on and is the numerator in EPS so it cannot be ignored. However, when trying to analyze the predictive power of margin growth/shrinkage on a business, operating margins are the best to use as it excludes the non-recurring or inconsistent aspects of the business that hits the bottom line. Some companies don't split out items like foreign exchange gains/losses from their operating margin line in their financials so these numbers aren't 100% apples to apples comparison across all companies. However, it should be close enough to get a clear idea of where each company ranks relative to its peers within a couple of points to the positive or negative.

The trailing 12 month margin (Margin TTM) is compared against the margins from the four quarters previous to that so you get an idea of how each company has improved or declined. This also aids in mitigating any accounting variances between each company as presumably each company's accounting policies stay static from year to year so you can at least judge their margin in terms of direction with 100% certainty. The final ranking is based on the Margin TTM number but when looking at this list you should also consider the improvement column.

NameMargin 13-24 moMargin TTMImprovementRank
NTG Clarity Networks Inc.13.4%35.7%22.3%1
ZoomMed Inc. -79.1%32.8%111.9%2
Wanted Technologies Corporation6.9%21.5%14.6%3
Photon Control Inc.10.9%16.6%5.7%4
Avante Logixx Inc. -3.3%13.4%16.8%5
QHR Corporation8.6%12.7%4.2%6
Route1 Inc. 7.8%7.0%-0.8%7
Quorum Information Technologies Inc.-0.7%-0.3%0.4%8
Nightingale Informatix Corporation3.2%-0.4%-3.6%9
Fireswirl Technologies Inc. -2.5%-0.5%1.9%10
TIO Networks Corp1.3%-1.2%-2.5%11
Sangoma Technologies Corporation1.8%-2.2%-4.0%12
VIQ Solutions Inc.-4.1%-4.1%-0.1%13
Odesia Group Inc.0.8%-5.6%-6.3%14
Versatile Systems Inc. -2.4%-10.8%-8.4%15
TransGaming Inc.-104.4%-12.5%91.9%16
SelectCore Ltd.-5.7%-13.5%-7.8%17
Medworxx Solutions Inc.5.6%-23.8%-29.4%18
OPSENS Inc. -22.8%-31.4%-8.6%19
ProntoForms Corporation-100.3%-31.6%68.7%20
Wi2Wi Corporation-88.4%-85.3%3.2%21
Cortex Business Solutions Inc.-187.7%-116.7%71.1%22
GINSMS Inc.-150.2%-143.9%6.3%23
Digital Shelf Space Corp. -113.2%-157.3%-44.1%24
Enablence Technologies Inc. -106.3%-171.4%-65.1%25
ePals Corporation-138.3%-192.5%-54.1%26
Magor Corporation-207.8%-295.8%-88.0%27
The Mint Corporation-270.3%-320.9%-50.6%28
E.S.I. Environmental Sensors Inc.-585.2%-328.2%257.0%29
Intertainment Media Inc. -559.7%-439.1%120.5%30
iSign Media Solutions Inc.-692.5%-476.8%215.7%31
Ackroo Inc.-448.9%-509.5%-60.6%32
Sensio Technologies Inc.-420.1%-615.9%-195.8%33
Sprylogics International Corp.-1132.4%-942.5%189.9%34
Extenway Solutions Inc.-1555.7%-1016.5%539.2%35
Valdor Technology International Inc.-1318.8%-1378.8%-60.0%36
POET Technologies Inc.-3034.2%-1844.1%1190.1%37
Times Three Wireless Inc.-555.6%-8838.2%-8282.6%38
LX Ventures Inc.-448.6%-5255.8%-4807.2%39
Las Vegas From Home.com Entertainment-731.0%-12327.4%-11596.4%40
Star Navigation Systems Group Ltd.-1664.6%-24080.2%-22415.6%41

ZMD and NCI clearly stand out as the top performers here. ZMD has had the biggest turnaround from -79% to 33% despite their past quarter being weak. To see the details on how it improved its performance, click here. In terms of margin, FSW showed slight improvement and is on the brink of profitability. While some people criticize FSW for having a mediocre margin, in the context of its revenue growth and P/S metric, the margin is outstanding. With a -0.5% FSW still ranks #10 which means it has a better margin than 31 other companies and improved from -2.5% in the prior four quarters.


Sustainability is a measure of each company's ability to maintain operations. Companies with working capital issues or large operating losses are much more likely to dilute their shares in the future or are at risk of bankruptcy. Long term debt can also be an issue for a company that is unprofitable. Listed below are each company's current assets, current liabilities, working capital and long term debt as reported from their latest financials. Keep in mind the disclaimer above regarding the accuracy of this data so you should always double check to verify it yourself before making investment decisions. Any debt or equity financing that took place after the company's financials has been mentioned in the Notes column. Those amounts have been added to the current assets (all assumed to be cash) if it is an equity financing and have been added to current assets and current liabilities or long term debt as appropriate if it was debt financing.

Name Current Assets Current Liabilities Working Capital  Long Term Debt Notes Operating income TTM WC Less Debt months WC months CA Rank
Photon Control Inc. 10,357,909 1,750,413 8,607,496 0 2,183,877 8,607,496 1
Wanted Technologies Corporation 5,102,514 2,019,483 3,083,031 0 1,643,017 3,083,031 2
NTG Clarity Networks Inc. 6,267,673 2,398,096 3,869,577 801,118 0 3,122,026 3,068,459 3
Avante Logixx Inc.  3,004,934 2,205,761 799,173 0 1,111,018 799,173 4
QHR Corporation 6,291,040 5,255,400 1,035,640 721,795 4,250,758 313,845 5
Route1 Inc.  2,540,744 2,687,298 -146,554 0 431,660 -146,554 6
ZoomMed Inc.  4,712,963 2,784,894 1,928,069 4,000,000 $4M deb 2,417,973 -2,071,931 7
Quorum Information Technologies Inc. 1,946,186 718,734 1,227,452 324,240 -23,360              630.5 8
Sangoma Technologies Corporation 11,896,791 1,480,344 10,416,447 0 -272,924              458.0 9
VIQ Solutions Inc. 5,211,105 2,166,480 3,044,625 31,043 -595,296                61.4 10
Fireswirl Technologies Inc.  8,968,310 7,910,117 1,058,193 0 0 -231,860                54.8 11
TIO Networks Corp 9,828,225 7,886,654 1,941,571 0 -503,279                46.3 12
LX Ventures Inc. 5,263,060 371,133 4,891,927 0 -1,630,662                36.0 13
OPSENS Inc.  8,458,671 2,415,319 6,043,352 2,717,630 -2,365,825                30.7 14
Sensio Technologies Inc. 4,727,385 983,948 3,743,437 0 -3,645,994                12.3 15
ProntoForms Corporation 1,907,175 1,060,707 846,468 560,953 -1,171,354                   8.7 16
Digital Shelf Space Corp.  1,693,552 336,102 1,357,450 583,460 $560K -1,991,067                   8.2 17
Enablence Technologies Inc.  13,607,000 5,833,000 7,774,000 1,571,000 $15M -12,063,000                   7.7 18
iSign Media Solutions Inc. 4,717,823 1,379,527 3,338,296 0 $2.85M -5,404,817                   7.4 19
POET Technologies Inc. 4,717,827 349,814 4,368,013 0 -7,168,441                   7.3 20
Magor Corporation 4,292,258 1,284,632 3,007,626 1,575,169 -5,224,353                   6.9 21
Cortex Business Solutions Inc. 6,048,718 1,944,569 4,104,149 0 -7,190,812                   6.8 22
TransGaming Inc. 3,658,311 3,020,967 637,344 2,246,639 -1,252,365                   6.1 23
Ackroo Inc. 998,190 321,647 676,543 0 -5,400,114                   1.5 24
GINSMS Inc. 1,037,366 751,092 286,274 6,074,466 -2,378,646                   1.4 25
Medworxx Solutions Inc. 4,221,821 4,116,237 105,584 0 -1,356,183                   0.9 26
Valdor Technology International Inc. 215,669 136,169 79,500 0 0 -1,817,457                   0.5 27
Nightingale Informatix Corporation 9,566,263 11,546,807 -1,980,544 11,373,172 $2.5M deb -77,092         1,489.1 28
Odesia Group Inc. 4,246,558 5,381,454 -1,134,896 987,193 -787,729               64.7 29
Versatile Systems Inc.  11,817,479 13,943,632 -2,126,153 0 -3,789,413               37.4 30
Sprylogics International Corp. 5,976,419 9,741,713 -3,765,294 0 0 -2,756,728               26.0 31
E.S.I. Environmental Sensors Inc. 899,382 1,792,812 -893,430 0 -490,963               22.0 32
SelectCore Ltd. 5,533,528 11,319,710 -5,786,182 2,525,000 -4,888,041               13.6 33
Wi2Wi Corporation 3,106,000 4,716,000 -1,610,000 0 -3,498,000               10.7 34
Star Navigation Systems Group Ltd. 1,445,347 1,635,331 -189,984 0 $900K -2,898,290                 6.0 35
The Mint Corporation 6,167,121 23,044,041 -16,876,920 12,288,965 -14,385,838                 5.1 36
Extenway Solutions Inc. 1,278,567 2,589,060 -1,310,493 6,014,301 200K, 390K -3,927,975                 3.9 37
ePals Corporation 9,863,685 15,577,749 -5,714,064 18,626,331 $3.5M, $3.02M -31,470,742                 3.8 38
Intertainment Media Inc.  3,201,796 14,991,144 -11,789,348 2,644,977 -17,032,037                 2.3 39
Las Vegas From Home.com Entertainment 148,873 918,990 -770,117 0 -2,358,101                 0.8 40
Times Three Wireless Inc. 133,000 1,520,000 -1,387,000 0 -3,005,000                 0.5 41
Total 205,077,238 182,286,980 22,790,258 75,667,452 -137,893,429

When ranking each company, three tiers were used where the companies in each tier were ranked against each other within that tier. The first seven companies are the ones which earned positive operating income over the past 4 quarters, seen in the column Operating Income TTM. The next tier are companies with operating losses but have positive working capital. They are ranked in order of how many months they have left before their working capital erodes to zero, assuming the same burn rate. That is the Months WC column. As an example, Sangoma has $10.4M in working capital with an operating loss of $273K. In the unlikely event that its burn rate was to continue indefinitely, it would have about 38 years worth of working capital, or just under 458 months. The last tier of companies are those with negative working capital and operating losses where the Months CA column represents how many more months of operations they have before they run out of cash and other current assets based on current burn rates.

Admittedly, this list isn't perfect. One could certainly argue that Sangoma is more sustainable than ZoomMed which has positive working capital but also a fair amount of long term debt. But this process was the best way to determine a relatively accurate way of ranking sustainability based on burn rates and current working capital without influencing it too much with personal opinion. Beyond the numbers, there is really not much to analyze here. It is pretty straightforward to see that the companies in the top half of this list are highly likely to survive with a few of them needing to do a financing within the next year or two. The ones near the bottom of the list are in grave danger of going into bankruptcy and must finance and significantly dilute the company or sell off assets in order to continue operating.

After reviewing this analysis you can see that there are some very good opportunities to be had on the TSX Venture within the tech sector. The entire industry is cheap when compared to the tech stocks south of the border. While many of them are cheap because they face severe operating or financial issues, the ones that make the top of this list and are strong in the majority of the four aspects of value, growth, profitability and sustainability without any glaring weaknesses clearly offer significant opportunities for future stock price growth that far surpasses many other stocks out there. TSX Tech News And Analysis remains very bullish on its three picks that made this list - FSW, NCI and ZMD - but any stock that is near the top of this ranking is worthy of a look by investors who wish to add some microcap tech exposure to their portfolio, especially considering how well several others that made the top ten like PHO, WAN and QHR have fared in the past two months.