Every month or so I go on what I call a ‘scouting mission’. I spend an afternoon running stock filters, reading through Sedar documents, perusing company websites, and researching company management using tools such as Google, linkedin, Sedi, etc.

This past Sunday I was rooting around an old favorite stock screener available on the Globe and Mail’s ‘Globeinvestor’ site which you can view at https://www.theglobeandmail.com/investing/

In this search I was looking for nanocaps with revenue, but not necessarily profitability, with a price to sales ratio of 1.25 or less. So I filtered the following:

1. Listed on the TSX Venture Exchange (TSXV), the Canadian Securities Exchange (CSE) or the NEO Exchange (NEO)
2. Market Cap less than 75 milllion
3. A Price to Sales to Ratio of less than 1.25
4. A revenue level of 0 – 25 million

My search returned 90 companies. Basically what I’m doing here is casting a broad net for companies that have revenue (proves they can sell something), aren’t highly valued (haven’t gone through price discovery, or have had a price implosion) and are very small (and hence early stage, beaten down or undiscovered).

And then the fun work begins. As I’m a ‘venture’ investor, looking at companies without profits, with little track record, the qualitative facts of a company matter just as much if not more than the quantitative (financial) facts. So digging and interpretation is required, which means the application of good old brute force reading, thinking and learning.

What ‘qualitative’ facts am I looking at? First and foremost it’s the management. Their experience, education, past successes and networks. Their skill set and background. Whether they are true industry experts.

I also look at the business strategy. Is it clear? Is it well presented? Is there a path or execution against which performance can be evaluated? Are there constant changes in direction or negative surprises? Is the company’s thesis / strategic plan achievable and is their business model realistic? Do these plans tie in properly to the financial performance / reality of the company?

I basically work my way down through the list, visiting websites, scanning financial statements, checking insider reports, seeing if I understand the company, and if it is worth a deeper dive. Most don’t make the cut, which doesn’t make them bad investments, just not the investments for me.

Interestingly, two companies that I follow closely popped up on my screen: Skylight Health Group (SLHG), which was a previous DTM5 holding, and one that I am taking a long, close look at again. Its price has come down so significantly it got filtered into my search (of particular interest is the price to sales ratio of less than 1.25 and the Market Cap being 41 million).

The other is a recent addition to the DTM5 – Plurilock (PLUR). Trading at a very low price to sales ratio , with growing revenue and a tiny market cap, there is a lot to like about PLUR as a higher risk venture investment, which I have written about in a previous blog post. https://dtm5.com/2022/01/04/unlocking-plurilock/

There are some other really cool companies on the list. And some ones in real trouble. I’m plucking away having gone through about 20 of the 90 so far. Oftentimes I’ll read about a company and wonder ‘damn this looks good but why are they losing money and what is the plan?’

It is easy to lose money. And it’s easier to lose OPM – Other people’s money. It is one thing I look very carefully at – How much respect does a company have for investor’s money. It is really really important. A credible company will guard that cash with wolverines and only deploy it for smart, strategic, developmental reasons.

GLTA!