We have recently started to showcase some of the companies that made it into the vaunted TSX Venture 50 list, some of the highest quality listed stocks in Canada. As part of my ongoing research into small and micro cap stocks around the world, this week I've also been looking at the Canadian market specifically.
None of these companies below has a market cap of more than USD 140m at time of writing, but they are all very high quality in my opinion. As ever I've been looking out for signs of a conservatively managed balance sheet coupled with a discernible vision that can fuel expansion on the part of senior management. Some companies which looked good on paper failed to make the cut because there are still too many ructions between boards and shareholders, which is a red flag to watch out for in this space.
What is also interesting about Canadian stocks at the moment is how heavily oversold they are. There are dozens of companies trading at valuations that are simply well below where they should be. This is an ongoing talking point with the Canadian fund managers we speak to regularly.
1. Ether Capital Corp
Shares in Ether Capital Corp [NEO:ETHC] have been moving steadily upwards in the last year, up over 140% in the last 12 months, this despite negative revenue growth. The PE is a mere 1.6x. This is a small company with a market cap still under CAD 100m. Ether is a play on Ethereum staking, so if you are uncomfortable with crypto, best to avoid. The company was the first publicly listed firm to stake a significant amount of Ether to generate an attractive yield. Ethereum 2.0, which requires proof of stake can generate yield in terms of newly minted cryptocurrency. Ether Capital says it will be ensuring it maintains a very lean cost structure going forward. The company has certainly been a direct beneficiary of more institutional interest in crypto markets in 2023.
2. Nova Cannabis
Nova Cannabis [TSX:NOVC] will be announcing its year and Q4 results today (Monday) 25 March. Its last set of numbers saw it file record revenue of CAD 67m which was a 15% increase on Q3 in 2022. Nova remains one of the fastest growing retailers of high quality cannabis products in the Canadian market. It owns and operates 92 locations across Alberta, Ontario and Saskatchewan under its Value Buds and Firesale Cannabis brands. The company has continued to break records in terms of gross margin and adjusted EBITDA as well. We flagged Nova Cannabis as a top Canadian consumer stock to watch on 13 February when stock was at CAD 1.40. It is now trading at CAD 1.79.
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