Written by Brian Paradza, CFA at The Motley Fool Canada
The PyroGenesis Canada (TSX:PYR)(NASDAQ:PYR)stock price rose over 7% in early trading on Tuesday. As speculated recently, traders are reacting positively to the company’s second-quarter earnings results released on Monday evening, and we’re witnessing a boost in investor confidence in the rising company’s sustained business growth path.
The company is a high-tech industrial firm that designs and commercializes advanced plasma processes that hold the potential to solve some of the world’s most pressing environmental problems. Its patented plasma technology is gaining momentum in replacing fossil fuel burners in iron ore smelting and aluminum manufacturing industries.
PyroGenesis reports record quarterly revenue
PyroGenesis generated a record $8.3 million in revenue during the second quarter of this year. Revenues grew by 289% year over year, while gross margins expanded slightly to 59.6% from the 59.5% recorded last year.
Operating expenses (excluding share-based compensation) grew at a slower pace and are up 149% year over year. As a result, the company’s operating margin jumped to 10.3%, up from a negative 17.4% reported during the same period last year.
Share-based compensation expenses and unrealized losses in the company’s investments portfolio distorted the company’s pure earning power as they contributed to a $20.4 million net loss. However, adjusting for these noisy expense lines, the business generated a modified EBITDA of $1.1 million during the quarter. This compares well against a $265k loss during the same period last year.
Growing revenue base
The company’s revenue backlog has increased from $26 million reported in May to $32.1 million. Customers continue to place new orders.
The company’s management mentioned an ongoing $40 million tender in the Middle East, where opportunities for a positive outcome abound. There are some discussions concerning a second similar-sized opportunity where PyroGenesis’s plasma technology has significant competitive advantages in reducing greenhouse gas emissions at lower costs.
Whether the company will win the two high-value opportunities is anyone’s guess. We’re also unable to place any timelines on any potential wins. However, shares could rally strongly if any contract of such magnitude is booked over the next 12 months.
Interestingly, the company’s technology has a growing list of applicable uses which include waste processing and 3D printing. Some early success has been registered in low-cost silicon production, with ongoing development to produce battery-grade nano-silicon for the emerging electric vehicle industry.
Could PyroGenesis be a millionaire-maker stock?
I’ve been a fan of the fast-growing Canadian high-tech industrial stock for quite some time. The company is growing in the right places and by the triple digits, and long-term returns are possible for patient investors. Indeed, this fast-rising stock could make some new millionaires this decade.
Annual revenue growth rates near 300% are simply too strong to ignore. Such growth rates are happening at a company with a globally patented technology. Its growing business has a clear and defendable moat.
I like the company’s clean balance sheet. There’s a low risk of shareholder dilution in the near term. The business remains adequately funded with over $18 million in cash and cash equivalents on its balance sheet.
If national governments globally remain resolute on their quest to reduce greenhouse gas emissions from fossil fuel burning, PyroGenesis will serve as a go-to provider of a low-cost furnace heating alternative that could make the entire iron ore smelting industry go green. Folks, we have a potential multi-billion dollar recurring revenue business in the making here.
Opportunities for PYR continue to ripen as its technology enters silicon manufacturing, hospital waste incineration, battery-grade nano-silicon production, and 3D printing for the aerospace and original equipment manufacturing verticals.
As a long-term play, PYR stock could potentially make new millionaires as the company empowers the world in fighting climate change.
A note of caution
PYR is a closely held stock. Founder and Chief Executive Officer Mr. Peter Pascali owns about half of the company’s stock, which could limit the available float for new investors. As such, I would advise investors to work with limited orders to find the best price on this volatile stock.
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