On today’s Canadian Breakouts report, there are 51 stocks on the positive breakouts list (stocks with positive price momentum), and six securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that is on the positive breakouts list - Mogo Inc. On March 19, its share price closed at a record high, jumping 13 per cent on high volume with over 10 million shares traded.
A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
With its head office in Vancouver, Mogo is a financial technology (fintech) company.
Last month, the company announced a strategic purchase causing the share price to skyrocket.
On Feb. 11, the company revealed its intention of acquiring a 19.99-per-cent ownership interest in Coinsquare Ltd. with the ability to increase its ownership interest to 40 per cent.
In the news release, management highlighted the importance of this acquisition, “Launched in 2014, Coinsquare has grown to become the leading digital asset trading platform in Canada with trading volume in excess of $525 million in January 2021. Coinsquare provides digital asset traders with a proprietary trading platform engineered to deliver a robust, secure, and userfriendly interface for trading Bitcoin, Ethereum and other digital assets. The trading platform makes buying and selling digital assets quick and convenient, with customers able to easily manage their portfolio of digital assets.”
Chief Executive Officer of Mogo David Feller said, “We believe strongly in the growing importance of cryptocurrency in the financial wallets of consumers, and deepening our relationship with Coinsquare will enable us to bring enhanced functionality and value into the MogoCrypto product.”
On Feb. 24, the company raised over $80-million with proceeds earmarked to fund this acquisition.
Canadian businessman Michael Wekerle, who investors may recognize as an investor from the TV show Dragons’ Den, is a large shareholder. According to Bloomberg, he owns over 10 per cent of the shares outstanding.
Quarterly earnings
Before the market opened on Nov. 10, the company reported better-than-expected third-quarter financial results that moved the share price up 4 per cent that day on high volume with over 9-million shares traded. The three month historical daily average trading volume is approximately 3 million shares.
The company reported revenue of $9.8-million, above the Street’s expectations of $9.6-million and exceeding management’s guidance of between $9.5-million and $9.7-million. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $4.8-million, ahead of management’s guidance of between $3.8-million and $4.2-million. The adjusted EBITDA margin stood at 49 per cent, up from 7 per cent reported during the same period last year.
In the earnings release, it was noted that this improvement was attributed to “record gross margin of 93 per cent based on strong loan performance as well as a significant reduction in growth related operating expenses”. The company reported net income of $1-million.
After the market closes on March 23, the company will be reporting its fourth-quarter earnings results. The Street is expecting revenue to come in at $9-million and EBITDA of $0.65-million.
Dividend policy
The company does not pay its shareholders a dividend.
Analysts’ recommendations
Since the start of the year, three analysts have issued buy recommendations and one analyst has a “hold” recommendation on the stock.
The firms providing recent research coverage on the company are: Canaccord Genuity, Eight Capital, HC Wainwright & Co LLC, and Raymond James.
Revised recommendations
Earlier this month, HC Wainwright’s Scott Buck hiked his target price to US$16 (the high on the Street) from US$4.
In February, these analyst made changes:
- Raymond James’ Steven Li lifted his target price to $15 from $7.50.
- Canaccord Genuity’s Doug Taylor downgraded his recommendation to a “hold” from a “speculative buy” but increased his target price to $13 from $6.
- Eight Capital’s Suthan Sukumar raised his target by $6 to $16.
Financial forecasts
The Street is forecasting solid top line growth. Revenue is expected to come in at $41.7-million in 2020, $47.1-million in 2021, and $60.9-million in 2022.
The Street’s top line forecasts have been rising. To illustrate, three months ago, the Street was anticipating revenue of $45.6-million in 2021.
Valuation
According to Refinitiv, the shares are trading at an enterprise value-to-sales multiple of 13.1 times the 2022 consensus estimate.
The average 12-month target price is $16.07, implying the share price has 12-per-cent upside potential over the next year.
Insider transaction activity
Year-to-date, there has not been any trading activity reported by insiders.
Chart watch
The stock has made a parabolic move in recent weeks rising from the mid-single digits to the double-digits.
Year-to-date, the share price has increased 196 per cent, closing at a record high of $11.47 on March 19. To put this rapid move in perspective, the share price closed at $4.25 on Feb. 1.
Despite this astounding move higher, the stock is not yet in overbought territory. The RSI (relative strength index) is at 65. Generally, an RSI reading at or above 70 reflects an overbought condition.
Looking at key resistance and support levels, the stock has an initial ceiling of resistance around $15. After that, there is overhead resistance around $20. Looking at the downside, there is technical support around $10, close to its 50-day moving average (at $9.02).