With some of the most widely traded TSX Venture tech sector companies having released their Q3 2011 financials recently, it makes it a great time to review their financial performance to see which company is most undervalued relative to the others. The four companies in this comparison are Fireswirl Technologies, Inc., SelectCore Ltd., Intertainment Media Inc., and Poynt Corporation. The chart below summarizes their shares outstanding, stock price and market capitalization statistics, compiled from tsx.com.
| Company Name | Symbol | Shares (000's) | Stock Price | Market Cap (000's) |
| Fireswirl | FSW | 44,641 | 0.210 | 9,375 |
| SelectCore | SCG | 123,815 | 0.280 | 34,668 |
| Intertainment Media | INT | 312,804 | 0.490 | 153,274 |
| Poynt | PYN | 489,841 | 0.130 | 63,679 |
Since December 6th, FSW, SCG and INT have all increased in price, with PYN falling. PYN increased their share count by about 10M to offset some of the market cap decrease as a result of their price decline. The chart shows that FSW has by far the least amount of shares outstanding, with PYN having the most. INT has the highest market cap while FSW has the lowest. By taking a look into the revenue profile of the last seven quarters, we can see if these relative market caps are justified.
| Revenue (000's) | Q1 2010 | Q2 2010 | Q3 2010 | Q4 2010 | Q1 2011 | Q2 2011 | Q3 2011 | Last 4Qs |
| FSW | 4,169 | 4,778 | 4,744 | 6,585 | 4,177 | 5,002 | 5,957 | 21,722 |
| SCG | 20,726 | 31,666 | 26,065 | 24,766 | 20,987 | 22,027 | 21,144 | 88,925 |
| INT | 1,273 | 1,299 | 1,379 | 1,403 | 1,168 | 1,375 | 1,279 | 5,225 |
| PYN | 192 | 215 | 255 | 339 | 536 | 573 | 734 | 2,182 |
We see above that SCG has by far the highest amount of revenue at over $20M a quarter, followed by FSW averaging around $5M a quarter, then INT at less than $1.5M and PYN at less than a million a quarter. Looking purely at the revenue numbers doesn't tell us the whole story, however, we must also look at the quality of the revenues being earned.
SCG's revenues have thus far been primarily from the prepaid cell phone card business while the higher margin financial services revenues are still in their infancy stage. INT revenues have been from their legacy digitial publishing business rather than their social media products. Only FSW and PYN earn the bulk of their revenues in their respective industries of focus. PYN's revenues are in their startup phase but growing rather quickly. FSW's revenues are more mature but are also growing at a great pace, particularly in Q3 2011.
The quality of each company's revenues can also be judged by their earnings. See the next two charts for the last 7 quarters of comprehensive net income for each company and net margin as a percentage of total revenues.
| Net Inc (000's) | Q1 2010 | Q2 2010 | Q3 2010 | Q4 2010 | Q1 2011 | Q2 2011 | Q3 2011 | Last 4Qs |
| FSW | -184 | -91 | -223 | -357 | -223 | -570 | 79 | -1,070 |
| SCG | -112 | -372 | 29 | -352 | 347 | -599 | -1,144 | -1,749 |
| INT | -1,418 | -1,669 | -1,207 | -1,347 | -6,211 | -4,797 | -3,748 | -16,103 |
| PYN | -8,953 | -2,225 | -2,969 | -2,772 | -2,422 | -3,652 | -3,963 | -12,809 |
| Net Inc % of Rev | Q1 2010 | Q2 2010 | Q3 2010 | Q4 2010 | Q1 2011 | Q2 2011 | Q3 2011 | Last 4Qs |
| FSW | -4% | -2% | -5% | -5% | -5% | -11% | 1% | -5% |
| SCG | -1% | -1% | 0% | -1% | 2% | -3% | -5% | -2% |
| INT | -111% | -128% | -88% | -96% | -532% | -349% | -293% | -308% |
| PYN | -4652% | -1036% | -1164% | -817% | -452% | -637% | -540% | -587% |
PYN has a signficant burn rate and revenues must be drastically increased before they start to make money. While revenues have increased greatly over last year, so have their costs and the company still sees margins at over -500%. They will likely need $6-7M revenue a quarter before they breakeven which could be 2 years or more away.
INT has a similar bad burn rate that is increasing with time but their business model is a little different. Their primary focus is asset value creation rather than upfront revenues where they burn cash in support of their products in hopes of spinning them off, namely Ortsbo, thus creating value for their shareholders.
SCG is the only company out of the four with two positive earnings quarters under their belt. But their past two quarters' losses have been particularly large as they transform their business.
FSW put up a positive income figure for Q3 2011, a company first, and leads the way as the company that is closest to breakeven as they lost just over $1M for the past four quarters. They are the only company out of the four whose net margin is headed in the right direction.
The final chart will compare some industry revenue and growth metrics. The first metric will be Price to Sales (market cap to revenue), the second will be Q3 2011 revenue growth when compared to Q3 2010 and the third will be YTD 2011 revenue growth vs the first three quarters of 2010.
| Revenue Metrics | Price to Sales | Q311/Q310 %Incr | Q311/Q310 YTD %Incr |
| FSW | 0.43 | 25.6% | 10.6% |
| SCG | 0.39 | -18.9% | -18.2% |
| INT | 29.33 | -7.2% | -3.3% |
| PYN | 29.18 | 187.7% | 178.3% |
FSW and SCG are very close in terms of price to sales but as mentioned before the quality of those revenues are vastly different. FSW's revenues are solely from their primary focus of operating online retail stores for various brands in China but SCG's revenues currently contain very little of their Iridium prepaid card business plan thus far. FSW's revenues are also growing with a 25.6% Q3 2011 vs Q3 2010 growth rate and 10.6% YTD vs the first three quarters of 2010. SCG's revenues are shrinking during their transition phase, down over 18% for Q3 as well as YTD vs 2010. The December 6th version of this comparison showed FSW to have a lower price to sales than SCG, but because FSW has increased in price more than SCG since then, SCG's P/S is now slightly lower.
INT and PYN are over 70 times more costly in terms of Price to Sales vs the other two companies. This difference is actually down from the December 6th version thanks to the changes in stock prices. PYN has by far the largest % increase in revenues, however it would have to continue this vast increase for several quarters before it gets to a level close to breakeven. Their market cap exceeds FSW's market cap by sevenfold despite being much further away from profitability. Both companies have business plans that could see massive growth to revenues so it is way too early to say that one company is justified in having a price to sales metric that is 70 times higher than the other.
Conclusion
While people will find this comparison useful for their own investing purposes, the conclusion is quite clear. FSW has a reasonable amount of shares and a very modest market cap compared to the other three despite having much higher revenues than PYN or INT. They have a fully implemented and growing business plan unlike their comparable SCG who are in the transition phase away from their low-margin legacy revenues. FSW is the closest to profitability when looking at Q3 2011 numbers and are poised for a big quarter in Q4 based on the seasonality of the online retail business and the contracts they signed to expand their business at the start of Q4.
While the other companies might be focused on product value creation through the increased number of users, FSW is the only company putting a growing amount of money in their pocket now. FSW's users are actually customers looking to spend money in an online environment, not just users of a free online platform. Investors are catching on to FSW as it is up 75% for the month of December.
Click here for a detailed analysis of Fireswirl Technologies
