Third Quarter 2023 Earnings Recap
The earnings season that came to a close last week was one of the best I've seen in a long time! Fundamentals are quite strong in microcapland.
And the best part was that several stocks had decent upside moves following good financial results or news. It feels like life is finally coming back into the sector.
In case you missed it, I published my Third Quarter 2023 Earnings Preview a month ago, in which I shared some predictions and companies to watch. Let's go back over those predictions and see how they played out!
Underdogs to Watch
Kraken Robotics (TSX-V: PNG)
My take on Kraken was that the market didn't believe the company's guidance for 2023 based on a softer first half of the year, which put the bar pretty high for the second half.
The company didn't disappoint. In fact, they released the best quarter in their history. Revenue increased 66% compared to the previous year, and EBITDA improved 153%.
The stock ended the month up 35%. Even after the share price increase, the stock still appears cheap on several metrics. As an example, at $0.60 per share, EV/EBITDA is only 10 times based on the mid-point of their 2023 guidance ($13.5 million) and 6.6 times based on consensus estimates for 2024 ($20.7 million in EBITDA).
Boardwalktech Software (TSX-V: BWLK)
I had identified Boardwalktech as an underdog for reasons similar to Kraken's, namely that the market didn't believe the guidance they put out at the beginning of the year.
Well… this time, the market was right. The company reported very underwhelming results and virtually no growth. Moreover, they pulled their guidance due to uncertainty around the timing of closing deals in their sales pipeline.
The stock ended the month flat. In hindsight, I still like my call, given that there has been no downside on a negative earnings report (already priced in) and a potentially substantial upside on a positive earnings report (we'll never know).
The company will likely remain in the penalty box until they show stronger execution.
Potential Disappointments
Biorem (TSX-V: BRM)
I included Biorem in this list not because I don't like the company but because they've been facing significant delays in delivering the projects in their backlog. In turn, this has put pressure on revenues and margins in the past few quarters.
The headwinds persisted in Q3 but to a lesser extent. Revenue was down 25% compared to last year but was up 29% sequentially from the second quarter. The bright spot was that the company swung back to profitability, earning $0.03 per share for the quarter.
I plan to catch up with management to dive deeper into those results. For now, let's just say there were some positives and negatives, so not a total disappointment. The stock was up 2% for the month (on very low volume).
Imaflex (TSX-V: IFX)
I was calling out Imaflex here because their public peers had just reported disappointing results and outlooks a few weeks before.
Unfortunately, Imaflex was not spared from the industry slowdown. Revenue came in 14% lower than last year, and profitability vanished. For a manufacturing company with lots of fixed costs, it's not unusual for profitability to swing wildly on modest changes in revenue. This can work both ways.
Fortunately, Imaflex has a solid balance sheet and a management team that has successfully navigated many cycles. But there’s not much to be excited about at this point. It's a waiting game until industry conditions improve.
The stock was down 27% for the month. It's safe to say Imaflex was a disappointment this quarter.
Flying Under the Radar
Spectra Products (TSX-V: SSA)
I highlighted Spectra because of its extremely small size ($4 million market cap) and because it's unlikely anybody knows about it. The company showed very strong fundamentals in the first half of the year, and I hoped to see continued progress in the third quarter.
The results came in below my expectations, although I wouldn't say they were terrible. Revenue was up 13% compared to last year but down 20% sequentially from the second quarter. Net income was pretty much flat year-over-year. It's not a disaster by any means, but results like this don't lead me to believe there is an emerging growth opportunity. At least not yet.
The stock was down 8% in November on very low volume. I'll be keeping this one on the watchlist for now.
That's it, folks. The third quarter of 2023 is in the books!
I hope you enjoyed my Preview and Recap. You can leave me a like if you enjoyed this format. I'd also love to read what were your highlights this earnings season. Feel free to share them in the comments section.
Now, all eyes will be on fourth-quarter results in March and April, quickly followed by 2024's first-quarter results in May.
Stay tuned for new predictions in a few months!
Disclaimer
This publication is for informational purposes only. Nothing produced under the Stocks & Stones brand should be construed as investment advice or recommendations. Mathieu Martin, the author, is employed as a Portfolio Manager with Rivemont Investments. This publication only represents Mathieu Martin’s own opinions and not those of Rivemont. Rivemont may own positions and transact on any securities mentioned in this publication at any time without prior notice. At the time of this writing, the Rivemont MicroCap Fund holds a position in Kraken Robotics (TSX-V: PNG) and Imaflex (TSX-V: IFX). Always do your own research and consult a professional before making investment decisions.
If you’d like to invest in small public companies, check out this post.