One of the microcap stocks he believes has a solid plan for continued growth
SmallCapPower | December 22, 2016: SmallCapPower attended a speech by KeyStone Financial President Ryan Irvine at the recent RAI$E conference in Toronto, who said his company combs through a list of 3,000 stocks to find 10 to 12 new stocks for their clients. He avoids companies with a business model that he finds too complex. During his talk, he revealed a few microcap stocks that he likes currently.
Singing Machine Company, Inc. (OTCQX: SMDM): The Company makes karaoke machines, yet it sold 1.4 million of them last year. Singing Machine Company had tremendous growth in revenue and earnings during the past three years. And, Wal-Mart is one of their biggest clients. Their product can be seen in Canada at Best Buy and Costco. At the time, Ryan Irvine said he liked Singing Machine’s valuation, and he believes the Company has a solid plan for continued growth. KeyStone Financial estimates earnings of $0.06 per share this year, which he believes to be conservative.
Sylogist Ltd. (TSXV: SYZ): Ryan Irvine said it reminds him somewhat of Enghouse Systems Limited (TSX:ENGH), a stock he recommended about five years ago, in that Sylogist is growing both by acquisitions as well as organically. Sylogist is in the software space, involved in financial, human resources, etc. He said the Company has a great balance sheet with about $31 million cash in the bank and no debt. It had 40% organic growth in its business during the last quarter. Sylogist has been a dividend grower, raising its dividend nine times during the past five years, and management continues to buy the stock. He called Sylogist “a solid business two to three years out,” and believes its growth is accelerating.
GlobalSCAPE, Inc. (NYSE MKT: GSB): They’re in the managed file transfer space to send sensitive data into the Cloud. GlobalSCAPE provides the security that encrypts that. It has a great balance sheet according to Ryan Irvine. It has $21 million, or a $1 per share, in cash. He believes the Company has decent organic growth and cash in the bank for acquisitions. It also pays a dividend with a relatively attractive valuation according to Mr. Irvine. He thinks GlobalSCAPE will earn $0.24 to $0.25 per share next year. The expected Compound Annual Growth Rate until 2024 of the market in which it operates is 7.7%, and the Company is gaining market share.
Photon Control Inc. (TSXV: PHO): A true value situation according to Ryan Irvine. He considers the new management team more market savvy. Photon Control services the semiconductor industry, providing optical measurement technologies. During the last quarter (Q3), the Company’s order backlog increased 26% to a record $8.8 million. Photon Control has cash on its book representing about 30% of its market cap, with no debt and relative attractive valuations. The Company sells primarily into the U.S.
Distinct Infrastructure Group Inc. (TSXV: DUG): KeyStone Financial is looking longer term here in a spending cycle that it is seeing for infrastructure for telco and cable companies. Distinct digs trenches and lays fibre for these companies. Ryan Irvine likes Distinct Infrastructure’s low relative valuation and strong organic growth. The Company saw 85% revenue growth in its third quarter along with a 112% jump in earnings. KeyStone had a fair value assessment of about $1.80 at the time. Bell recently announced plans to invest $20 billion nationally in the broadband, fibre, and wireless networks until the end of 2020. Distinct Infrastructure is the preferred supplier to Bell, but also does business with Telus. He sees it as a growth at a reasonable price story.