On today’s TSX Breakouts report, there are 48 stocks on the positive breakouts list (stocks with positive price momentum), and 15 stocks are on the negative breakouts list (stocks with negative price momentum).
Featured today is a stock that may resurface on the positive breakouts list with its share price just 3 per cent away from its all-time closing high. This small-cap stock is covered by seven analysts on the Street and has a unanimous buy recommendation. Year-to-date, the share price has rallied nearly 30 per cent driven by its solid operating results. In the October 2019 issue of Maclean’s magazine, Canadian Business ranked this company number 280 on its list of Canada’s top 500 fastest-growing companies based on revenue growth over the preceding five years. This company’s five-year growth rate came in at 297 per cent.
The security discussed today is People Corporation (PEO-X).
A brief outline is provided below that may serve as a springboard for further fundamental research when conduction your own due diligence.
The company
Winnipeg-based People Corporation is a consulting firm providing services such as employee group benefit consulting, pension consulting, and human resource consulting and recruitment services.
Management’s four core growth objectives are focused in sales and service, product offerings, strategic acquisitions, and acquisition synergies and integration. In the first quarter of fiscal 2020 (the company’s year-end is Aug. 31), the company will be launching two new product offerings: People Care, a mental health therapy solution, as well as a disability management support product.
On July 30, the company announced a $36-million acquisition with its plan to purchase Toronto-based ACL Student Benefits Ltd., a post-secondary student benefits company servicing over 200,000 students principally in Ontario, Alberta and New Brunswick. In a news release, the executive chairman and chief executive officer Laurie Goldberg remarked, “The addition of ACL to the People Corporation family significantly enhances our market position in the post-secondary student benefits sector, which has very strong underlying fundamentals. In adding the scale and capabilities of ACL to our existing student benefits business, we have solidified our position as a preeminent student benefits solution provider in Canada, broadened our reach into the international student segment, gained meaningful exposure to the Ontario student market and positioned ourselves for accelerated growth in the sector.”
Before the market opened on July 15, the company reported solid third-quarter fiscal 2019 financial results that sent the share price soaring over 5 per cent that day.
Revenue came in at $42.4-million, up 27.6 per cent from $33.3-million reported during the same period last year. Organic, or internal, revenue growth was high at 9.8 per cent. Management indicated that its strong organic growth was a reflection of new client additions, and greater product and service offerings to existing clients. Management maintained it annualized organic growth rate target of between five per cent and 10 cent. Acquisition growth represented the balance, 17.8 per cent, of the company’s top line growth driven by six acquisitions completed over the past year. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $9.5-million, up 29 per cent year-over-year, and relatively in-line with the consensus estimate of $9.4-million. The adjusted EBITDA margin stood at 22.4 per cent, holding steady from 22.2 per cent reported last year.
As at May 31, the company had $25.9-million of cash on its balance sheet along with $97.8-million of unused credit capacity to fund its future growth. On the earnings call, the chief financial officer and chief operating officer Dennis Stewner indicated that post the quarter, “We negotiated our credit facility and increased the size of our revolver to $125-million, adding $27-million in financial capacity.”
The small-cap stock with a market capitalization of $567-million trades on the Toronto Venture Exchange.
Dividend policy
The company currently does not pay its shareholders a dividend.
Analysts’ recommendations
There are seven analysts that cover this company and all seven analysts have buy recommendations. The analyst from Cormark Securities has a ‘top pick’ recommendation.
The firms providing research coverage on the company are as follows in alphabetical order: Acumen Capital, Canaccord Genuity, CIBC World Markets, Cormark Securities, Desjardins Securities, Laurentian Bank Securities and National Bank Financial.
Revised recommendations
In July, every single analyst covering the company revised his or her expectations higher.
Desjardins’ Gary Ho increased his target price by 50 cents to $10.25 (the low on the Street). Acumen’s Jim Byrne lifted his target price to $11.25 (the high on the Street). Cormark’s Meny Grauman raised his target price to $10.60 from $10.20. CIBC’s Stephanie Price took her target price up to $11 from $9.75. Canaccord Genuity’ Scott Chan, raised his target price to $11 from $10.25. Chris Martino from Laurentian Bank Securities took his target price up by 50 cents to $10.50. National Bank Financial’s Jaeme Gloyn has a target price of $11, up from $10 reported earlier in the month.
Financial forecasts
The Street is forecasting revenue of $164-million in fiscal 2019, rising 20 per cent to $197-million in fiscal 2020. The consensus EBITDA estimate is $36.2-million in fiscal 2019, and anticipated to climb 24 per cent to $44.9-million in fiscal 2020. The consensus earnings per share estimates are 12 cents in fiscal 2019 and 22 cents for fiscal 2020.
Fiscal 2019 estimates have been stable in recent months; however, expectations for fiscal 2020 have increased modestly. For instance, three months ago, the consensus EBITDA estimates were $36-million for fiscal 2019 and $41-million for fiscal 2020.
Valuation
The stock has room for multiple expansion. According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 13.5 times the consensus fiscal 2020 estimate, below its three-year historical average of 14.7 times and well below its peak multiple of over 18 times during this time period.
The average 12-month target price is $10.80, implying the share price has 16 per cent upside potential over the next year. Individual target prices are as follows in numerical order: $10.25 (the low on the Street is from Desjardins’ Gary Ho), $10.50, $10.60, three at $11, and $11.25 (the high on the Street is from Acumen’s Jim Byrne).
Insider transaction activity
Since the start of the second half of calendar 2019, two insiders have reported trades in the public market.
Between Aug. 30 and Sept. 3, Scott Anderson, who sits on the board of directors, sold a total of 147,600 shares for three accounts at an average price per share of approximately $9.18. Proceeds totaled over $1.3-million.
On Aug. 13, chairman and chief executive officer Laurie Goldberg sold 200,000 shares at a price per share of $9 for an account in which he has indirect ownership (Goldberg Business Trust), leaving 4,904,547 shares in this account. Proceeds from the sale, not including commission fees, totaled $1.8-million.
Chart watch
Year-to-date, the share price is up nearly 30 per cent, outperforming the 17 per cent price return for the S&P/TSX composite index. The share price is 3 per cent away from its record closing high of $9.60 reached on Aug. 1.
Looking at key resistance and support levels, the stock is approaching initial overhead resistance between $9.50 and $10. After that, there is a ceiling of resistance around $11. Looking at the downside, the share price has initial technical support around $9, close to its 50-day moving average (at $8.96). Failing that, there is strong technical support around $8, near its 200-day moving average (at $8.03).
Liquidity for this small-cap stock is low, which can increase price volatility. The three-month historical daily average trading volume is approximately 75,000 shares.
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.
Jennifer Dowty