Another Tech Stock Growing Quickly Just Like NCI

FSW.V CURRENT PRICE: $0.09
FSW.V TARGET PRICE: $1.75
UPSIDE POTENTIAL: 1,844%
SHARES OUTSTANDING: 45,571,285

July 17, 2013 - Since TSX News recommended NTG Clarity Networks (NCI.V) on June 3 at 16 cents, the stock has doubled and reached as high as 46 cents only 6 weeks later after they released record second quarter revenues and earnings that saw them earning 3 cents per share for the quarter on a revenue increase of 76% when compared to Q2 2012. The company remains on track to meet or surpass the EPS estimate of 9 cents per year and by using a 50 Price to Earnings, TSX News reiterates its $4.50 target price.

A company that is in a similar position for stock price appreciation like NCI was at the beginning of June is Fireswirl Technologies Inc. (FSW.V). Like NCI, FSW has a low share float, has high revenue growth from recently signed agreements, has international exposure and has a market cap that compares very favourably to its revenue. In May of 2012, FSW signed a partnership with GSI Commerce to expand its client footprint in China with respect to helping brands operate online stores within the country. GSI Commerce (now called eBay Enterprise) is a subsidiary of eBay and serves more than a thousand retailers and brands worldwide so the growth potential for FSW is vast, as seen in their recent financial releases.

In 2012 FSW increased their revenue by 38% with a 77% decrease in their operating loss compared to 2011, with most of the revenue growth being in Q4 after getting their partnership with GSI up and running. For Q1 2013 their growth became even more apparent as the company increased revenues by 175% when compared to Q1 2012. Below is a table showing the operating performance of FSW by quarter since the start of 2011.

Q1 2011Q2 2011Q3 2011Q4 2011FY 2011
Revenue4,176,9725,001,9755,957,4814,901,84920,038,277
Operating Expenses4,306,7795,534,5196,075,6875,194,81121,111,796
Operating Profit-129,807-532,544-118,206-292,962-1,073,519
Margin %-3.1%-10.6%-2.0%-6.0%-5.4%
Q1 2012Q2 2012Q3 2012Q4 2012FY 2012Q1 2013
Revenue3,487,8415,830,1786,419,77311,813,56527,551,3579,585,794
Operating Expenses3,629,7715,891,0806,430,02611,852,32527,803,2029,642,853
Operating Profit-141,930-60,902-10,253-38,760-251,845-57,059
Margin %-4.1%-1.0%-0.2%-0.3%-0.9%-0.6%
YoY Revenue Growth %-16.5%16.6%7.8%141.0%37.5%174.8%
YoY Operating Profit Improvement-9.3%88.6%91.3%86.8%76.5%59.8%


The operating profit figures exclude gains or losses from currency fluctuations and taxes, but these figures clearly show that FSW is headed towards profitability. The past four quarters have seen operating losses of less than $100K each, with margins of less than 1% negative. In 2011 their best margin for any quarter was -2% in Q3. These numbers highlight the strong possibility that Q2 2013 will be profitable for FSW. Q2 2012 saw a margin of -1% based off of revenue figures prior to the GSI partnership. Q1 margins improved 3.5% from -4.1 in 2012 to -0.6% in 2013 so a similar improvement for Q2 could see a positive margin of 2 to 3%.

In the last four quarters FSW has made $33.6M in revenue. At a 9 cent stock price their market cap is $4.1M so their trailing 12-month Price to Sales metric is only 0.12x. Consider that FSW's new run rate is $10M per quarter of revenue and their multiple is even cheaper at around 0.1x. Compare that to eBay which has a Price to Sales metric of over 5x and Amazon which has a P/S of over 2x and you clearly see that FSW is undervalued, particularly as they are on the verge of profitability. Even NCI has grown to the point where their Price to Sales multiplier is around 1x. Based on revenue of $40M a year and a Price to Sales metric of 2x, FSW's market cap would be $80M. An $80M market cap divided by 45.6M shares outstanding would lead to a target price of $1.75 per share for FSW.

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