Canadian Small-cap Model Portfolio Communications
We are adding a position in media technology company AcuityAds Holdings Inc. (AT-T) at 2.0%.
AcuityAds ranks as one of the top earnings momentum small-cap technology names in Canada. As we show in Exhibit 1, 12-month trailing earnings for AcuityAds have increased in seven of the past eight quarters to a current $0.27 from a mid-2019 bottom of -$0.15. This positive earnings growth has led to upward revisions to 2021 consensus earnings. Following Q2/F21 results in August, the 2021 consensus estimate was again raised to $0.26 from $0.21 (+24%), further continuing its trend higher from a January 2020 low of -$0.01. Year-over-year earnings growth expectations have also significantly narrowed to 27% from a high of 76%, as 2022 consensus earnings have remained stable over the past year. Lower growth expectations reduce the risk of upcoming earnings disappointments and subsequent negative revisions, in our view. Revenue growth, an important metric for us in small-cap technology, has also turned positive, with momentum improving over the past two quarters (Exhibit 2).
Admittedly, AcuityAds' share price has seen a high degree of volatility throughout the pandemic, climbing from a low of $0.74 in April 2020 to a February 2021 peak of $32.32 (+4,268%) and subsequently declining to the current $7.81 (-76%). This decline in share price has lowered AcuityAds' 12-month forward P/E to 25x, which is more in line with the levels before its share-price run-up (Exhibit 3).
Although earnings and revenue momentum is positive for AcuityAds, we are adding a smaller position at 2.0%, given the weaker technical price backdrop. As we show in Exhibit 4, AcuityAds is trading in a downward price channel with lower lows and lower highs. We would consider adding to our position if we see a break above the 50-day moving average, which has been the level of resistance over the past several months. AcuityAds is expected to report Q3/F21 earnings on November 3.