While the tech heavy NASDAQ continued to hit new highs, the large majority of small Canadian technology stocks have been slaughtered since summer. This scenario “should” be setting up attractive investment opportunities for 2016 but this weekend I simply want to point out how destruction in the resource sector, has had a devastating impact on MANY sectors – technology included.
The TSX, TSXV and CSE are so heavily weighted to commodity exploration and production, that the overall wealth destruction we have experienced in 2015 has made Canadian stocks one of the worst performing markets “anywhere”. Let’s hope from this bottom that we have nowhere to go but up in 2016.
Below this NASDAQ chart are just a few of the higher profile microcap tech examples.
Investors and shareholders are now giving little value to “Potential” Growth. They are discounting tech stocks dramatically if they don’t show a clear path to top line revenue growth and profitability.
By comparison, the Canadian medical marijuana sector is now valuing small public companies at ridiculously high valuations. The marijuana sector is screaming high risk but recently it has benefited from successful stock promotion and herd mentality.
TECH EXAMPLES
1) Frankly Media (TLK: TSXV) (75 cents) - $26 million raised at $3.05 late 2014 and a $45 million U.S. acquisition completed in the summer of 2015 involving cash and stock valued near $2.65. This is one of the top online digital media companies reaching 100 million users – apparently the market does not care.
2) UrTheCast (UR: TSX) ($1.75) - www.urthecast.com - $100 million raised this summer at $4 and those investors have lost 56% of their investment in only four months! UR has a fascinating business model built around satellites and space but investor perspective has rapidly changed from a growth story, to a focus on earnings / profit.
3) Espial (ESP: TSX $2.28) – www.espial.com – Destroyed the end of October when financials did not meet market expectation. Big shareholders appeared to be “looking” for an excuse to sell. Annualized revenue was running in the range of $35 million but the stock near $4 had a market cap in excess of $120 million. This valuation for a microcap Canadian tech was simply too high as revenue was not growing fast enough. Reality simply hit home (all within a week).
4) Guestlogix (GXI: TSX) (29 cents) – www.guestlogix.com – In two months this tech lost 70% of its value when the reality of weak financials also set in. While their annual revenue was in excess of $40 million, they were continually bleeding red ink and the balance sheet was suffering.
This has become a VERY common problem for many small publicly listed companies (not just tech related). Since the resource sector has collapsed, investors are realizing that the “hope of growth” is not enough. They want more tangible investments and if one company doesn’t perform, they simply sell and move onto something they feel is more promising.
The competition for investment dollars is Cut- Throat right now and public companies cannot afford to stumble.
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Disclosure (shares always purchased in the open market):
Danny Deadlock owns 35,000 shares of TLK.
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