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Monday’s TSX breakouts: A consumer stock with 7 buy calls and 34% upside forecast

On Friday, major U.S. stock markets were mixed. Bellwether technology stocks saw their share prices tumble, sending the Nasdaq composite index plunging 1.80 per cent. The S&P 500 index was relatively flat, declining 0.08 per cent and the Dow Jones Industrial Average increased 0.42 per cent.

In Canada, the S&P/TSX composite index gained 50 points or 0.32 per cent. There were 126 securities in the TSX Index that advanced, 119 securities declined in value, and five stocks closed the day unchanged.

Year-to-date, the TSX Index is up 1.21 per cent. In the U.S., the Dow Jones Industrial Average is up 7.64 per cent, the S&P 500 index has increased 8.62 per cent, and the Nasdaq composite has rallied 15.32 per cent.

On today's TSX Breakouts report, there are 15 stocks on the positive breakouts list (stocks with positive price momentum), and 19 stocks are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a stock that was last featured in the TSX Breakouts report at the start of the year. At the time, I speculated that this micro-cap stock may steadily gain attention from investors as it continues to grow. Since then, three additional firms have initiated coverage on the company and the share price has increased over 22 per cent. This stock is now covered by seven analysts – quite impressive for a micro-cap stock. The stock has an unanimous buy recommendation with analysts forecasting nearly 34 per cent upside potential. The security highlighted below is GreenSpace Brands Inc. (JTR-X).

A brief outline is provided below that may serve as a springboard for further fundamental research.

The company

Toronto-based GreenSpace Brands develops and markets natural food products under brands such as Life Choices, Rolling Meadow Dairy, Holistic Choice, Central Roast, Love Child Organics, and Nudge. Management's growth strategy is a combination of organic, or internal, growth combined with acquisition growth.

The company has been expanding its reach to consumers by securing new distribution agreements. Most recently, on March 22, management made a positive announcement. The company's Central Roast brand will have seven of its product offerings sold in 1,000 additional stores in one of Canada's largest pharmacy chains. The Love Child Organics brand will have four of its products stocked in 155 new Sobeys Atlantic and Sobeys Ontario grocery stores, and the firm's Nudge brand will have a new line of bars for kids offered in 450 grocery stores through three major retail partners.

In a news release, the president and chief executive officer Matthew von Teichman commented on the company's distribution success stating, "Our expanding sales team continues to work with our large and small customers to expand the presence of the GreenSpace portfolio of products for every Canadian consumer."

Last November, the company announced that their Central Roast brand would be sold at Starbucks locations across Canada starting in January 2017 with the initial launch of two snack products, "Breakfast" and "Energy".

The company's growth strategy is on solid footing. On February 13, the company reported in-line third-quarter fiscal 2017 financial results (The company's fiscal year end is in March 31). Gross revenue came in at $10.08-million, up from $3.22-million reported during the same period last year, and relatively in-line with the $10.61-million consensus estimate. Adjusted gross margins were 22.9 per cent, down slightly from 23.3 per cent year-over-year. Management is targeting adjusted gross margins to be between 23 per cent and 25 per cent in upcoming quarters. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was positive compared to a loss reported last year. In the fourth-quarter of fiscal 2016, the company reported its first quarter with positive adjusted EBTIDA.

The stock trades on the TSX Venture Exchange.

Dividend policy

Management is focused on growth and currently does not pay its shareholders a dividend.

Analysts' recommendations

Back in January when this stock was last featured in the TSX Breakouts report, only four analysts covered this company. Now, there are seven analysts covering this microcap stock, with a market capitalization of $87-million, and all seven analysts have buy recommendations.

The firms providing research coverage are as follows in alphabetical order: Alta Corp. Capital, Beacon Securities, Canaccord Genuity, Cormark Securities, Laurentian Bank Securities, PI Financial Corp., and Raymond James.

Financial forecasts

The consensus revenue estimates are $39-million in fiscal 2017, rising 46 per cent to $57-million in fiscal 2018, and forecast to reach $66-million in fiscal 2019. The company is forecast to be profitable in fiscal 2018. The Street is anticipating earnings per share of 4 cents in fiscal 2018 and 7 cents in the following fiscal year.

Earnings expectations have been stable. To illustrate, the consensus revenue estimates for fiscal 2017 and fiscal 2018 are unchanged from three months ago.

Valuation

According to Bloomberg, the stock is trading at an enterprise value-to-sales multiple of 1.4 times the fiscal 2019 consensus estimate, above the average multiple of 1.1 times over the past year but below the peak multiple of approximately 1.6 times during this period.

Individual target prices from the seven analysts covering the stock are as follows in numerical order: $1.80, $1.95, $2, $2.10, $2.20, $2.25, and $2.50. The average one-year target price is $2.10, implying the share price may appreciate nearly 34 per cent over the next 12 months.

Insider transaction activity

There have been no reports of insider buying or selling activities so far this year.

Chart watch

The stock has limited trading history as it was publicly listed in 2013.

This consumer staples stock has been a strong performer with its share price rallying over 24 per cent year-to-date, in addition to a 29 per cent return in 2016. The solid gain realized so far this year was due to its stellar move higher in January. Since then, the positive price momentum appears to have stalled with the stock price consolidating, or trading sideways, largely between $1.40 and $1.65 over the past four months.

In terms of key resistance and support levels, the share price has a ceiling of resistance around $1.75, and after that, around $2. Looking at the downside risk, the share price has strong technical support around $1.40, which is near its 200-day moving average (at $1.37).

The three-month daily average trading volume is reasonable at approximately 250,000 shares.

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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.

If you want to receive an automatic link to all reports that I write, follow me on Twitter at @jennifer_dowty

TSX breakouts

Positive BreakoutsJune 9 close
BOS-TAirBoss of America Corp $12.90
APR.UN-TAutomotive Properties REIT $11.43
BYD.UN-TBoyd Group Income Fund $102.12
CWX-TCanWel Building Materials Group Ltd. $6.74
DNA-TDalradian Resources Inc. $1.62
DH-TDH Corp $25.49
GIL-TGildan Activewear Inc $40.86
IMG-TIAMGOLD Corp $6.83
KEY-TKeyera Corp $42.13
LUN-TLundin Mining Corp $7.84
ORL-TOrocobre Ltd. $4.04
PBH-TPremium Brands Holdings Corp $94.84
SEC-TSenvest Capital $200.50
VNR-TValener Inc $22.96
WSP-TWSP Global Inc $52.02
Negative Breakouts
AIM-TAimia Inc $2.01
BXE-TBellatrix Exploration Ltd $0.82
CTC.A-TCanadian Tire Corp Ltd $149.17
ENGH-TEnghouse Systems Ltd $55.00
EIF-TExchange Income Corp $32.71
FFH-TFairfax Financial Holdings Ltd $586.08
G-TGoldcorp Inc $18.07
GXO-TGranite Oil Corp $4.57
GC-TGreat Canadian Gaming Corp $23.43
HBC-THudson's Bay Co $8.61
JE-TJust Energy Group Inc $6.90
MND-TMandalay Resources Corp $0.50
MRD-TMelcor Developments Ltd $15.67
PTM-TPlatinum Group Metals Ltd $1.40
RET.A-TReitmans Canada Ltd $4.51
SEA-TSeabridge Gold Inc $13.39
SCL-TShawCor Ltd $29.29
TOT-TTotal Energy Services Inc $12.97
TOS-TTSO3 Inc $2.88

Source: Bloomberg

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