Investors may want to avoid the Canadian small caps on our list as their gross margins have declined sharply over the past three years
SmallCapPower | July 13, 2017: Seeing deteriorating margins is never a good sign when evaluating companies for potential investment decisions. Decreased margins can occur for many reasons, most predominately, higher raw materials costs. There is no good that comes from a decline in profitability so it is a good idea to avoid companies that seem to be trending that way. Today we have identified four Canadian small caps that have seen their gross margins decrease significantly over the past three years.
Primero Mining Corp. (TSX: P) – $0.41
Gold
Primero Mining Corp. is a precious metals producer with operations in both Mexico and Canada. The Company is focused on building a portfolio of precious metals assets in the Americas through acquiring, exploring, developing and operating mineral resource properties. Its segments include San Dimas, Cerro del Gallo, Black Fox Complex and Corporate. It owns over two producing properties, including the San Dimas gold-silver mine, located in Mexico’s San Dimas district, and the Black Fox mine, located in the Township of Black River-Matheson, Ontario, Canada.
- Revenue (LTM): $275,008,372
- 3 Year Gross Margin Decrease: -89.0%
- Gross Margin %: 0.3%
Quarterhill Inc. (TSX: QTRH) – $1.83
Investment Holding Companies
Quarterhill Inc, formerly Wi-LAN Inc, is a Canada-based investment holding company focused on growing its business by acquiring technology companies in the Industrial Internet of Things (IIoT) across multiple verticals. The Company targets companies with a broad range of products and services that capture, analyze and interpret data, and that have financial performance, management teams, intellectual property underpinnings and opportunities to develop long-term recurring and growing revenue streams.
- Revenue (LTM) $93,278,554
- 3 Year Gross Margin Decrease: -80.3%
- Gross Margin: 36.2%
Questor Technology Inc. (TSXV: QST) – $1.35
Environmental Services & Equipment
Questor Technology Inc. is an environmental cleantech company that is active in Canada, the United States, Europe and Asia and is focused on clean air technologies that improves air quality, supports energy efficiency and greenhouse gas emission reductions. The Company designs, manufactures and services waste gas combustion systems; as well as, power generation systems and water treatment solutions utilizing waste heat. The Company’s incinerator technology is utilized around the world in the management of methane, hydrogen sulfide gas, volatile organic hydrocarbons, hazardous air pollutants, and benzene, toluene, ethyl benzene and xylenes (BTEX) gases.
- Revenue (LTM) $7,877,680
- 3 Year Gross Margin Decrease: 36.9%
- Gross Margin: 37.9%
Yellow Pages Ltd. (TSX: Y) – $6.96
Online Services
Yellow Pages Limited (Yellow Pages) is a digital media and marketing solutions company engaged in providing local businesses, national brands and consumers with the tools to interact and transact within digital economy. The Company provides digital and print media and marketing solutions in Canada. Yellow Pages offers small and medium-sized enterprises across Canada full-serve access to a suite of digital and traditional marketing solutions, primarily online and mobile priority placement on Yellow Pages’ owned and operated media, content syndication, search engine solutions, Website fulfillment, social media campaign management and digital display advertising, as well as video production and print advertising. Its digital media properties include Canada411, RedFlagDeals.com, ComFree/DuProprio, YP Dine, Yellow Pages NextHome, Bookenda.com, dine.TO, YP Shopwise and 411.ca.
- Revenue (LTM) $803,860,000
- 3 Year Gross Margin Decrease: 35.0%
- Gross Margin: 30.3%
Disclosure: Neither the author nor any of the principals at Small Cap Power, or their family members, own shares in any of the companies mentioned above.
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