The Canadian small cap stocks we’ve dug up have realized rapid growth in their gross margins over the past four years
SmallCapPower | May 8, 2019: Gross margins can be defined as the amount of revenue retained after accounting for cost of goods sold. Gross margins are generally important as it is the starting point towards achieving a healthy net profit. Gross profit is often regarded as an indicator of financial health and can demonstrate that a company has the capacity to grow. Today we’ve identified four Canadian small cap stocks that have rapidly expanded their gross margins over the past four years.
*Share prices as at close Monday, May 6, 2019, data obtained from S&P Capital IQ
Chorus Aviation Inc. (TSX:CHR) – $7.58
Airlines
Chorus Aviation engages in the airline business in Canada and the U.S. It provides Air Canada with scheduled passenger service under the Air Canada Express brand name. Chorus also provides charter services through a fleet of Bombardier aircraft for governments, corporate clients, and individuals. These services include ground handling, dispatching, flight load planning, training, and consulting services. Additionally, CHR is involved in aircraft leasing and contract flying activities, maintenance & repair provision, and overhaul. On February 22, 2019, Chorus reported Q4/18 results; EPS was $0.25 on revenues of $358.7M. EPS beat consensus estimates of $0.23, while revenues missed estimates of $372.2M. The Company pays a monthly dividend of $0.04 (6.3% dividend yield).
- Market Cap: $1.2 Billion
- YTD return: 37.6%
- 4-Year Average Gross Margin Expansion: 330 bps/year
Sienna Senior Living Inc. (TSX:SIA) – $18.56
Health Care Facilities
Sienna Senior Living provides a variety of retirement housing options, including independent and assisted living. Sienna also provides long-term care (LTC) services in Canada. Its LTC services include memory care, long-term care, and specialized programs & services. As of December 31, 2019, SIA owned and operated a total of 70 seniors’ living residences comprising 27 retirement residences, 35 LTC residences, and 8 seniors’ living residences. On February 29, Sienna reported Q4/18 results; funds from operations (FFO) were $0.36 per share on revenues of $169.4M, which beat consensus estimates of $0.33 and $165.8M, respectively. The Company is expecting to release Q1/19 results after the close on May 8, 2019. Additionally, Sienna pays a monthly dividend of $0.0765 (5.0% dividend yield).
- Market Cap: $1.2 Billion
- YTD Return: 18.52%
- 4-Year Average Gross Margin Expansion: 140 bps/year
CanWel Building Materials Group Ltd. (TSX:CWX) – $4.81
Trading Companies and Distributors
Canwel Building Materials Group distributes building materials and home renovation products in Canada, Hawaii, and the western United States. Canwel has two operational segments: building materials distribution and forestry. Regarding the building materials distribution segment, the Company sells products such as decks, railings, insulation, décor products, fusion stones, exterior products (sidings, panels, shingles), and security products. In addition, Canwel is involved in the ownership and management of private timberlands and crown forest licenses, logging operations, and trucking operations. CWX serves new home construction, home renovation, and industrial customers, which include hardware stores, and industrial & furniture manufacturers. On April 1, 2019, CanWel announced that it had completed its acquisition of Lignum Forest Products LLP, from Conifex Timber Inc. (TSX:CFF) for an undisclosed amount. Management announced that the acquisition is expected to be accretive toward CanWel’s F2019 results. The Company is expecting to release Q1/19 results after the close on May 9, 2019.
- Market Cap: $373.7 Million
- YTD Return: 5.82%
- 4-Year Average Gross Margin Expansion: 140 bps/year
Maxar Technologies Inc. (TSX:MAXR) – $9.22
Aerospace and Defence
Maxar Technologies provides space technology solutions for commercial and government customers worldwide. The Company’s three segments include: Space Systems, Imagery, and Services. The Space Systems segment supplies space and ground-based infrastructure, along with information solutions. These products include satellites, antenna subsystems, surveillance solutions, and robotic systems. This segment also offers spacecraft and subsystems to the U.S. and Canadian government, and other customers for research and development missions. The imagery segment focuses on Earth imagery and radar data solutions for the U.S., Canadian, and other international government agencies. The Services segment provides geospatial information, applications, and analytic services for the U.S. government and commercial customers. The Company reported Q4/18 results on March 1, 2019; EPS was $0.27 on revenues of $496M, which missed consensus estimates of $0.68 and $517.8M. Revenue fell 9% due to a drops in Space Systems, while EBITDA fell from $116M to $84M. Maxar also reduced its dividend to $0.01/quarter, down from $0.02764/quarter.
- Market Cap: $550.5 Million
- YTD return: -42.94%
- 4-Year Average Gross Margin Expansion: 600 bps/year
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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