Like the lady above, Tucows is recalculating it’s strategy.True revenues for 6 months of 2018 were ahead by 15% and adjusted EBITDA by almost 30% but Q2 figures were all down except for adjusted EBITDA.Still most investors know their financial performance was better than all other similar Canadian technology stocks.Tucows is still an anomaly amongst it’s peers in the technology scene but it could stand to make improvements to make it look like the stellar performer that it is.
Quarterly Reports
Tucows has performed better than most of the Canadian technology stocks over the last 2 years.But in one area it is found to be lacking.It’s quarterly reports show that it only has 2 revenue producing services – domaine names and mobile services.Most investors know that Tucows owns a good-sized variety of junior technology companies besides these two services.It is in managing these junior tech. stocks that Tucows makes a large part of it’s earnings.But Tucows does not give investors a breakdown of it’s subsidiary’s revenues and earnings.This blog feels that by showing lack of sophistication it’s stock price has suffered.After all it’s earnings outpace companies like Kinaxis, Shopify, Descartes and Altius.But it’s P/E ratio is smaller.than all of these companies.Tucows earned $2.75 per share in 2017 and the highest of these other technology stocks is Kinaxis at $1.00 per share in 2017.Substantial sized companies like Mediagrif and Descartes only made $.48 and $.49 per share.
Tucow’s Second Quarter
Most of their financial indicators were average except for earnings per common share which was down 31%.But the most important indicator ,adjusted EBITDA, was up almost 10%.Still in comparison to most of Tucows quarters this was below trend.On the other hand,their 6 months performance was quite substantial.Revenues were up 15%,adjusted EBITDA up 29% and free cash flow up 46%.And it is on track to hit $2.00 to $2.25 per share for 2018.This may be down from 2017 but double it’s nearest competitor.It appears to this blog that investors are punishing Tucows unnecessarily as it’s P/E ratio is very low in comparison to competitors many of which do not even have earnings.
Slowing Down but Ahead by a Mile
It is true that Tucows could use a few touch-ups but it’s performance is considerably better than all of it’s competitors.Tehnology companies trade at higher P/E multiples than most stocks because they have higher growth rates.Most technology companies do have higher growth rates.For example, Kinaxis has a P/E multiple of 100 times earnings and Descartes has a multiple of 101 times earnings.Even an established technology company like Open Text has a multiple of 44 but only e.p.s. of $.91 in 2017.But Tucows which has good established earnings of $2.59 per share has only a multiple of 27 times.Even a company like Mediagrif which has an almost steady growth rate has a P/E multiple of 20 times.So it is the opinion of this blog that Tucows deserves a P/E multiple of slightly less than Open Text or about 40 times earnings still much below Kinaxis and Descartes and not even close to Shopify which has negative earnings.Recently a German investment company called IGV has taken advantage of it’s low multiple and bought a 10% share.They, like this blog believe that Tucows is trading at bargain prices.
Conclusion
It is the opinion of this blog that Tucows (with it’s funny name) has an unsophisticated and unrepresentative image.It has not updated it’s quarterly report for many quarters.This company should be put in a category with Descartes and Altius Group which only have e.p.s of$.35. But both of which have a much higher multiple.And it should have a P/E ratio closer to Open Text and to Kinaxis.This would raise it’s P/E to closer to 40 times earnings.And that would put Tucows into the $80s by November.
https://www.fairfax.ca/ ;
This website(Econothon II) is focussed on new and technical matters.And this is our first analysis of Shopify;it fits the category on both accounts.Shopify now handles all aspects of online shopping.It’s recent acquisition of 6 River Systems strengthens their presence in warehouse solutions.And now they handle shipping (Shopify Shipping),emails (Shopify Emails),cash advances (Shopify Capital).And more and more consumers are doing this online with mobile devices like the one shown above.Shopify tells shareholders in their Q4 report that 80% of traffic and 68% of orders are made from mobile devices.
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