On today’s TSX Breakouts report, there are 31 stocks on the positive breakouts list (stocks with positive price momentum), and 12 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is an industrial stock that has not appeared on the positive breakouts list given that it is below the $200-million screening threshold.
However, the company is one to take note of with its share price rocketing 40 per cent year-to-date. The company has reported steady top line growth securing license agreements with well-known companies such as Agropure, GayLea and Merck. In addition, the company has a contract with the U.S. Army. The security highlighted today is EnWave Corp. (ENW-X).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Vancouver-based EnWave has developed Radiant Energy Vacuum technology, or REV technology, which dehydrates organic materials through vacuum microwave energy that management argues can be more economical than freeze drying. Its REV technology has applications in the food and pharmaceutical markets, including the marijuana industry.
Management’s core objective is to adhere to a royalty business model, entering into commercial license agreements (CLAs) with royalty partners and receiving royalty streams from the licensing of its technology. Royalty payments received are calculated based on a percentage of sales or units sold by its partners. EnWave currently has secured over 20 license agreements. Royalty partners include Agropure Dairy Cooperative, GayLea, and Merck, In addition, management has numerous technology evaluation and license option agreements (TELOA), which represent prospective royalty partners that may evolve into future CLAs. Most recently, on April 20, the company announced that it entered into a TELOA with one of Canada’s largest cannabis producers. Furthermore, the company has a contract with the U.S. Army to co-develop field rations.
To illustrate the application of the company’s REV technology, the company, through its wholly-owned subsidiary NutraDried Food Company, distributes a snack product called Moon Cheese to retailers, including Costco, Starbucks, Loblaws, Safeway, Target, Rite Aid, and CVS. On April 19, the company announced that it received a second purchase order for its Moon Cheese product from Costco’s Pacific Northwest division. The product uses EnWave’s technology to dehydrate cheese. The product is currently available in two Costco divisions, the Pacific Northwest and Midwest divisions. In addition, on April 26, management announced that its royalty partner Agropure Dairy Co-operative plans to launch iogo Protein Crunch snack products in Quebec and Alberta this spring.
EnWave has seen its revenues steadily expand. For example, in fiscal 2015 (the company’s year-end is September 30) EnWave reported revenues of $5.87-million, rising to $14.93-million in fiscal 2016 and increasing to $15.95-million in fiscal 2017.
Dividend policy
The company does not pay its shareholders a dividend.
Analysts’ recommendations
This micro-cap industrial stock with a market capitalization of $141-million is covered by two analysts on the Street. The analyst from Industrial Alliance Securities has a ‘buy’ recommendation and the analyst from Cormark Securities has a ‘speculative buy’ recommendation.
Revised recommendations
In February, Kyle McPhee, the analyst from Cormark Securities, raised his target price to $1.70 from $1.60.
Financial forecasts
Steady growth is forecast for this company. The consensus revenue estimates are $21.55-million in fiscal 2018, rising to $31.05 in fiscal 2019 and $34.2 in fiscal 2020. The consensus EBITDA (earnings before interest, taxes, depreciation and amortization) estimates are $2.5-million in fiscal 2018, $7.04-million in fiscal 2019, and $12.3-million in fiscal 2020. In terms of earnings per share, the Street is anticipating the company to breakeven in fiscal 2018, report earnings per share of 6 cents in fiscal 2019 and 9 cents in fiscal 2020.
Over the past several months, forecasts have increased. To illustrate, three months ago, the Street was anticipating revenue of $21.4-million for fiscal 2018, and $30.1-million for fiscal 2019. The consensus EBITDA estimates were $2.24-million for fiscal 2018 and $6.59-million for fiscal 2019.
Valuation
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 18.7 times the fiscal 2019 consensus estimate and at 10.7 times the fiscal 2020 estimate.
The consensus one-year target price is $1.60, implying the stock price may appreciate 14 per cent over the next 12 months. The analyst from Industrial Alliance Securities has a target price of $1.50, while the analyst at Cormark Securities has a target price of $1.70.
Insider transaction activity
On April 26, President and Chief Executive Officer Dr. Tim Durance sold 100,000 shares, reducing his sizeable portfolio’s holdings to 1,542,738 shares.
Chart watch
So far this year, the stock price has soared 40 per cent. Despite the share price’s strong move higher, the stock is not technically overbought. The relative strength index reading is 59, in neutral territory, suggesting the stock is neither overbought nor oversold.
Looking at key resistance and support levels, there is initial overhead resistance around $1.50. After that, there is a ceiling of resistance between $1.80 and $1.90. On a pullback, there is support around $1.20, near its 50-day moving average (at $1.24). Failing that, there is support around $1.10, at its 200-day moving average, and then at $1.
The three-month historical daily average trading volume for this micro-cap stock is approximately 135,000 shares.
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.
Jennifer Dowty