Small Cap Discoveries Editor Paul Andreola on Lingo Media Corp (CVE:LM), Biosyent Inc., Cipher Pharmaceuticals, Lite Access Technologies
Small Cap Discoveries Editor Paul Andreola joins The Ten Baggers to discuss how his team is able to identify winners like Lingo Media Corp (TSX.V:LM) (OTCMKTS:LMDCF), XPEL Technologies Corp (CVE:DAP.U), Biosyent Inc. (TSX.V:RX)(OTCMKTS:BIOYF), Cipher Pharmaceuticals Inc (NASDAQ:CPHR)(TSE:CPH), and Lite Access Technologies Inc.(CNSX:LTE) before they make their biggest moves.
[four_fifth_last padding=”0 0 0 20px”]Listen to the interview with Paul Andreola:
Transcript of Interview
James West: Paul, thanks for joining us today.
Paul Andreola: Thanks, James. Happy to be here.
James West: So Paul, you produce a newsletter called Small Cap Discoveries at SmallCapDiscoveries.com. Why don’t you give me an overview of what the value proposition is of that newsletter for subscribers, and an overview of your investing style?
Paul Andreola: So there’s a discovery process that we recognized that happens to all our stocks. So what we try to do is, we try to identify companies before they pass that discovery process, and part of that could be a set of earnings, or some catalyst that has happened within the company, maybe a discovery in a biotech approval, something like that. So we’re constantly looking for deals that have that possibility of those catalysts.
Now, what we typically do is, we find using a bottoms up approach, companies that are growing and establishing trends in their financial numbers. So we don’t participate in the resource sector; we’re strictly non-resource. So we go through every SEDAR filing in Canada almost on a daily basis, you know, SEDAR’s financial filings, and we screen out all the non-resource companies, and we look for companies that are showing very significant growth in both earnings and revenues. And so we’re trying to find the best companies, the fastest-growing companies, and then we’ll sort of review them and, based on a valuation model of views, we try to screen out the fastest-growing companies that are offering the best prices, and we try to do it before the industry discovers them. Hence the name ‘Small Cap Discoveries’.
James West: I see. So you read all the SEDAR financial statements?
Paul Andreola: Yeah. I’ve got a partner named Brandon Mackie that I work with, so between the two of us, what we do every day is review all the filings, again, all the quarterly and annual statements that come out, and sometimes there can be quite a few of them. so we manually screen them, looking for the criteria we look for, and every now and then we’ll find one or two that meet our criteria, and then the real due diligence starts.
At that point we’ll interview management, we’ll do some industry analysis, and look at things like share structure and what the ownership position with the management, how they purchase their shares, what other kind of significant shareholders are involved. A lot of times we find that it’s important to find out the quality of the shareholders to see if there’s any significant sort of movers in the industry that are participating, and if it meets all our criteria or pretty close to all our criteria, we look at writing up a report and sending it to our subscribers.
James West: Mm-hmm.
Ed Milewski: Paul, it wasn’t so long ago, you and I were having lunch at the National Club and I was telling you about Lingo Media, and we went over there and we had a very good conversation with the founder, and this is probably the kind of company where it’s been around for a long time and the stock’s not doing anything, it’s off-radar, and all of a sudden you find out that lo and behold, it looks like they’re going to get an earnings bump. This is the kind of thing you’re talking about, right?
Paul Andreola: Yeah, that’s exactly the kind of company, and Lingo’s a perfect example. We found Lingo back when it was around $0.30, $0.32 mark. Here’s a company that was doing okay for a long time, kind of frozen by the market for various reasons, and you know, the guys there managed to, I think, turn things around. They were always doing okay but they really took the business and it started go grow quite quickly. And we can identify those kind of companies with numbers, and again, a perfect example: they came out with very good numbers about two or three quarters ago, and the trend is continuing, and the stock, last I saw it, was around the mid-seventies.
Ed Milewski: Yes, yes.
Paul Andreola: Since those good quarters we’ve kind of seen it more than double. And you nailed it, this is exactly the kind of company we’re talking about.
Ed Milewski: And you know, in their case, they had that royalty stream from China, which – and you know I’m pretty sure you’ll agree, management’s pretty frugal, so they were able to keep it going together with little or no dilution. So yeah, I know what you’re talking about. It would be nice if we could find one of these every three months or so.
Paul Andreola: Yeah, I know. They don’t come around too often, but when they do, you want to try to jump on them. It’s amazing how well they can perform. We’ve had lots of companies like that that have gone up so many times in value. You don’t have to take on a lot of risk to get quite a good return in this market.
James West: Sure. Have you got some other examples of companies that match your profile?
Paul Andreola: Yeah. Well, a couple of companies that we’ve had in the past that we’ve had, we’re not necessarily buying them at these points, but you know, companies like XPEL Technologies, we started buying that around the $0.17 to $0.20 mark. Within two years it was trading at $4, it’s since pulled back. BioSyent Inc. was another great example of, we started buying it in the $0.50, $0.60 range, it hit a high of $13 within a couple years. And then even Cipher Pharmaceuticals Inc., Cipher was the stock that we started buying in the $2 to $2.50 range, and that hit a high of $19 in a couple years.
So these are the kind of companies we’ve had historically, and it’s all based on the same principle: these are companies that are growing their earnings and their revenues quite quickly, and you get those kind of returns.
So right now we’re looking at a few other companies that are starting to meet those criteria. Some are maybe 9 out of 10, and some are 10 out of 10s. One company that we’re extremely excited about is a company called Lite Access Technologies Inc. (CNSX:LTE).
Ed Milewski: Ticker LTE, right?
Paul Andreola: Yeah, the symbol is LTE, it trades on the Canadian Securities Exchange, they only went public in June. They went…
Ed Milewski: They went public at a quarter, right? $0.25?
Paul Andreola: Yeah, they went public at a quarter, they raised about 1.85 million at $0.25, there’s (unintelligible) [0:06:46] attached to that financing which is quite refreshing. But in the span of just five months that they’ve been public, last year they did about $3 million in revenue. This year, in the first two months of the year, they’ve already announced close to $9 million in bookings and by all indications, it could be as high as 20 million by the time the year is done. So there’s a perfect example of a company that’s grown extremely quickly. They’re involved in the fibre optics space, that’s a market that’s exploding, and as we see more demand for Netflix and video and all the different online devices, the telco’s and the existing infrastructure right now can’t keep up with the demand for data. So a lot more fibre optics is replacing the cable and copper sort of systems that are in place right now. So Lite Access deploys fibre in a method that’s cheaper and faster than traditional methods, so of course, their products and services are highly in demand right now.
That’s a company we’re extremely excited about, and looks like it’s going to be a very fast grower for the next few years.
Ed Milewski: You’ve known about this company for quite awhile, is that correct?
Paul Andreola: Yeah. So years and years ago, I was involved in a start-up that delivered satellite television signals to high-rises in Vancouver – well, across the country, actually – and I knew that there was an upcoming demand for internet, and satellite was not a very good way of delivering internet. So several years later, I was approached by the founders of the company, and got to know the company about 10 years ago. So I’ve actually known the company for almost 11 years now, and watched them do all sorts of projects. They did work with Google, they’ve worked with Bell Canada when they did the 2010 Olympic Games, in parks and stalls in Central Park in New York, Stanford University and (unintelligible). So yeah, I know the company very, very well.
James West: Great. And so do you – where do you see the, at what point would you sell a company like Lite Access Technologies?
Paul Andreola: So again, it goes back to the discovery process. So what we try to do is identify companies before the masses sort of identify them, and if they’re doing the right thing, sooner or later the masses or the industry finds out about them. That’s when we sort of look to start selling. So when we see an analyst come on TV, maybe two or three analysts come on TV and start to talk about a stock, that’s typically when we look to start to sell, because at that point now, it’s sort of reached the end of its discovery phase. That doesn’t mean it won’t go higher, but it means that the bulk of the gain is really sort of taken out of the business.
So we tend to look at selling when the stock has reached what we think is full value, and net that sort of in discovery. It’s a little contra to what a lot of people think, but again, we try to get involved before everyone else does, and reap the benefits when everybody else finds out about it.
Ed Milewski: And get out when everyone else is getting in?
Paul Andreola: Yeah, one of our sell criteria is really what else there is available. So if we see one that is fairly over-valued, we’re likely to be selling that and buying the one that’s a new discovery or a new deal, or a new stock that we’ve found that sort of meets our value criteria again.
James West: Mm-hmm. And Paul, what’s your background?
Paul Andreola: So I spent, well, originally I used to run a construction company, so I’ve got experience in running a business, but eventually I got into the brokerage business, spent about 12 years as a broker. Left that business to start two technology start-ups, which did quite well, and then since then I’ve really been a private investor and helped companies from sign up phase to help manage public companies, things like that. So I’ve got a broad sense of experience in a lot of different facets of public markets and companies.
James West: Great. Okay, Paul, that’s an awesome interview. Thanks very much for your time today.
Paul Andreola: You’re welcome. I appreciate it.
Ed Milewski: Paul, thanks a lot, and look forward to talking to you in the near future.
Paul Andreola: You bet. Me too.
Ed Milewski: Thanks, Paul. Thanks a lot.
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