On today’s TSX Breakouts report, there are 46 stocks on the positive breakouts list (stocks with positive price momentum), and 30 securities are on the negative breakouts list (stocks with negative price momentum).
I try to feature a wide range of companies in order to appeal to a variety of investors.
Discussed today is a small-cap technology company that is on the positive breakouts list. Given that the company is not yet profitable, it may be best suited for consideration by investors with a high risk tolerance. Year-to-date, the share price has rallied nearly 17 per cent with a further 45 per cent gain anticipated by analysts. Over the past five trading sessions, the share price has spiked 9 per cent. As a result, the stock price may fill in this gap and could retreat to the $7 level in the near-term.
The security highlighted today is Blackline Safety Corp. (BLN-X).
A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
Calgary-based Blackline Safety manufactures safety monitoring products providing live-monitoring and wireless gas detection wearable devices. The company’s products are used in various industries including the energy sector, utilities, water/wastewater, industrials, and the engineering and construction market segments.
In terms of geographical revenue breakdown, in fiscal 2019, 39 per cent of the company’s sales came from the U.S., 36 per cent from Canada, 21 per cent from Europe, 2 per cent from Australia and New Zealand, and 2 per cent of sales came from other international markets.
On Jan. 30, the company reported its fourth-quarter financial results (the company’s fiscal year end is Oct. 31). Revenue came in at $10.7-million, up 94 per cent from $5.5-million reported during the same period last year, beating the consensus estimate of $8.4-million. Recurring service revenue totaled $5.1-million, representing 48 per cent of total revenue (gross margin was 68 per cent), while product revenue totaled $5.6-million, accounting for 52 per cent of total revenue (gross margin was 29 per cent). Gross margin expanded to 47 per cent from 45 per cent last year. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) came in at $155-thousand, marking the fourth consecutive quarter of positive adjusted EBITDA. Blackline is not yet profitable, reporting a loss per share of 6 cents. At quarter-end, the company had cash and cash equivalents and short-term investments of $30.6-million. That day, the share price rallied 3 per cent.
During the fourth-quarter, the company was awarded a $3.4-million contract with a U.K. water/wastewater utility. This was the third U.K. water utility to award a contract to Blackline. In the third-quarter, Blackline received a $1.1-million order from Welsh Water, and during the second quarter, the company was awarded a $1.9-million order from Yorkshire Water.
In a news release issued on Oct. 22, Mark Haylett, the sales manager at Blackline Safety Europe remarked, “G7c wearables will help to keep utilities personnel safe while they deliver clean drinking water to homes and businesses. Having won all three major U.K. water and sewerage contracts tendered this year, G7c has proven to deliver an unbeatable combination of features and capabilities far superior to competitor offerings.”
The company did not host an earnings call.
Management is focused on growing the company and becoming profitable. As a result, the company does not pay its shareholders a dividend.
There are three analysts that cover this small-cap stock with a market capitalization of $347-million, of which two analysts have buy recommendations and Gabriel Leung, the analyst at Beacon Securities, has a ‘speculative buy’ recommendation.
Firms providing research coverage on the company are as follows in alphabetical order: Beacon Securities, PI Financial, and Raymond James.
Earlier this month, Beacon Securities’ Gabriel Leung increased his target price to $10 from $8.25.
Late last month, Raymond James’ Ben Cherniavsky lifted his target price to $10 from $9. PI Financial’s David Kwan hiked his target price to $11.50 from $9.
The Street is forecasting robust top line growth for the company. The consensus revenue estimate is $56-million in fiscal 2020, up from a record $33-million reported in fiscal 2019, and forecast to rise to $91-million in fiscal 2021. The company is anticipated to reported positive earnings per share in fiscal 2021.
The company is anticipated to be profitable in 2021. Consequently, the stock is commonly valued using a DCF (discounted cash flow) valuation method.
The consensus one-year target price is $10.50, implying the stock price may appreciate nearly 45 per cent over the next 12 months. Individual target prices in numerical order are as follows: two at $10, and $11.50.
Insider transaction activity
Looking back over the past five months, only one insider has reported trades in the public market.
On Jan. 14 and Jan. 15, director Dr. John Finbow purchased a total of 3,940 shares at an average price per share of approximately $6.54 for three accounts in which he has control or direction over. The cost of these investments exceeded $25,000.
Year-to-date, the share price for this technology stock is up nearly 17 per cent, closing at a record high of $7.25 on Tuesday on high volume with over 207,000 shares traded.
The share price has rallied 9 per cent over the past five trading days and may need to pause and digest these gains. Consequently, in the near-term, the share price may settle around the $7 level.
Liquidity can be quite low for this stock, which can create price volatility. The three-month daily average trading volume is under 20,000 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.