The Canadian Investor - 10 stocks under 10 billion - TCI Rewind

Episode Date: April 14, 2022

In this episode of the Canadian Investor Podcast we discuss ten companies under 10 billion in market cap that are worth adding to any watchlist. Those companies are Redfin, Equitable Group, Docebo, To...picus, Innovative Industrial Properties, ANGI, Fiverr, TMX Group, Lemaitre Vascular and the Descartes Systems Group Tickers of stocks discussed: RDFN, EQB.TO, DCBO.TO, TOI.V, IIPR, ANGI, FVRR, X.TO, LMAT, DSG.TO Our Website Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Sign up to Stratosphere for free šŸš€ our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense. Check out the Yes We are Open Podcast from sponsor MonerisSee omnystudio.com/listener for privacy information.

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Starting point is 00:00:00 Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is
Starting point is 00:00:45 coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca. Again, eqbank.ca. Hey, Canadian Investor Podcast listeners. You may be wondering why I'm doing this intro before the episode starts well like braden mentioned on twitter earlier this week we were not able to record our regular thursday episode because he got sick and unfortunately lost his voice we still wanted to publish an episode so we decided to revisit an episode that was released last summer
Starting point is 00:01:39 and that we received some great feedback on the episode that that we're releasing is an episode that we did on 10 businesses under $10 billion in market cap. We did a recent episode that was a bit similar. However, this one is for smaller businesses and it's also not specific to Canadian companies. So you'll notice that there are a lot of names that are different compared to the one we did recently. We hope that you enjoy this Rewind episode. Live from the Great White North, this is The Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger.
Starting point is 00:02:28 markets hosted by Brayden Dennis and Simon Belanger. The Canadian Investor Podcast. Today is August 11th. Today we have a fun episode. We are doing 10 interesting companies under 10 billion in market cap. I'm Brayden Dennis joined by my co-host as always Simon Belanger. Dennis, joined by my co-host as always, Simon Belanger. Simon, we have five each that we're going to do today. We said, what are 10 interesting companies? And we are putting a cap on it of 10 billion in market cap. We have a good mix, like 50-50 of Canadian and US equities. So it's a great list for the podcast here today. Simon, how are you doing? And then feel free to kick us off. I do like the companies you have picked here and let's get to it. Yeah, yeah, I'm doing well. Excited to get started on that. I think we came up with this idea because we've been, like we mentioned on the previous episode, a lot of people asking about these
Starting point is 00:03:23 like penny stocks and things like that and seeing that people are interested in smaller cap companies. So these 10 companies are definitely smaller and they're very interesting. Like we always say, make sure you do your own due diligence because this is just an overview of each company. The first one I'm going to start off with is Redfin. one I'm going to start off with is Redfin. So for those who have not heard of Redfin before, it's a real estate technology company. At a high level, they do residential real estate brokerage where they really differ from traditional realtors that their agents are paid by salary and not commission. So they are full-time employees. can get bonuses but it will usually be based on the volume of transaction that they do not necessarily the price like a traditional broker and that's
Starting point is 00:04:12 always been my pet peeve with brokers personally because I find that even though they have code of ethics to follow it's yeah the incentive is a bit out of whack. I know like if we have real estate agents, I know there's some good ones out there. So I'm not saying they're all like that. I'm just saying the incentive for the realtor is oftentimes, you know, the more they can get, whether they're representing the buyer or seller, you know, there's a strong incentive for them financially. Now, Redfin has a market cap of about 55.8 billion right now. They do have some debt on the balance sheet. It is, however, some convertible debt. I couldn't find. I know it's in their annual report, but I couldn't find the convertible share price, but something to keep
Starting point is 00:04:59 an eye on. They do have a decent amount of cash on the balance sheet, $735 million. They don't have a high gross margin for this company, so it's only 26%. But it is because of the nature of their sales. They do obviously have commission that they will get when they do sales, the company itself. So they tend to do about 1% commission for the sales, but they also will purchase houses from customers and resell them. So obviously the gross margin on those is much lower. They were free cashflow positive for 2020. For the full year of 2020, their revenue increased 14% to $886 million. They have, like I mentioned, different types of revenues. The main three are in order brokerage revenue, then the properties
Starting point is 00:05:55 revenue, and the partner revenue. So partner revenue is when they refer some business to another realtor that's not necessarily part of Redfin. So they will get a referral fee for that. So in order, it's $607 million for the brokerage revenues, $209 million for the properties revenues, and $43 million for the partner revenue. They did have some other revenues for just some smaller items as well. And they have a compound annual growth rate of 31% for their revenues. So just some other highlights. So they help customers buy or sell more than 310,000 homes worth more than $152 billion through 2020. This, again, is mainly in the U.S., but they are present in Canada as well.
Starting point is 00:06:40 They are not present in every state in the U.S., so that's something to note. as well. They are not present in every state in the US. So that's something to note. They saved customers nearly $1 billion when compared to a 2.5 commission rate. Like I mentioned, they tend to have a 1% rate. They drew more than 42 million monthly average visitors to their website and mobile application in 2020. That's an increase of 28% compared to 2019. 2020. That's an increase of 28% compared to 2019. They had customer return to them for another transaction at a 54% higher rate than competing brokerage. And so those are just some of the highlights. I won't go through all of them. And then the last thing I did, and I did this for most of the companies, I had a quick look on Glassdoor and I would say their CEO is pretty well regarded, Glenn Kelman. 88% of employees approve of the CEO. Pretty big samples of close to 958 reviews
Starting point is 00:07:34 and 73% of them would recommend Redfin to a friend. And the last reason, it is attractive, especially in the US for brokers because they offer health benefits. So we know that it's private insurance over there. So there is some attractiveness to being an employee there versus the lumpiness of being a realtor. This is one of those businesses that you look at it and you go, isn't this a tech company? Why are the margins so crap? isn't this a tech company? Why are the margins so crap? And then you remember that, you know what, it's one of these companies that are disrupting mature markets. And it is not a pure play technology company. But it's one of these companies that have brought technology into an existing market and change the way that consumers interact with that market. And Redfin
Starting point is 00:08:27 is a perfect example of that. So you're not going to see those like 90% SaaS margins on this thing, but they are in a market that is old and inefficient and ineffective, which is buying and selling homes. And you brought up a good point with the incentives, right? Is poorly aligned incentives cause really good people to do bad things, even when they have great morals, whatever it is. Incentives are one of the most powerful structures of how humans behave. So I'm glad you brought that up. Yeah. And the last thing I forgot to mention is they roughly have 1% of the US market. That's 2020 figures. So there is room for growth over there. So that's something to keep an eye on too. Yeah, it's a huge total addressable market. All right, moving on. Another company
Starting point is 00:09:28 innovating in an old mature space trying to grab some market share from the big incumbents, which is Equitable Group. It is 2.6 billion in market cap on the TSX. I bought this stock in April of 2017 as it fell 50% in one week on news that their competitor, Home Capital Group, had some sketchy activity going on in their books. There was a big shuffle of the management team. Warren Buffett threw in $2 billion as a lifeline to Home Capital. Fun fact, and since then, my shares are up 320%. And I haven't done anything. And I don't typically do deep value. But this just seemed like, you know, a fat pitch that the market was so wrong about. And so equitable was this, this business doing much better. They have a much better balance sheet, they were growing faster, they're benefiting from this, this much better. They have a much better balance sheet. They were growing faster. They're benefiting from this housing market. And they were building Canada's first digital-only
Starting point is 00:10:31 bank called EQ Bank. And it is still so cheap today. So EQ Bank is an absolute beast. They're growing deposits at a hell of a clip. So it's when we talked about like high, high interest savings accounts, EQ Bank has gained a lot of market share here in Canada that they have now 300,000 Canadians on their platform, which is up 79% year over year and 220,000. Sorry, sorry, up 220,000. And deposits are up 99% to six and a half billion in deposits. Digital transactions are up over 100% year over year. And so this digital only bank is grabbing a lot of market share quite very quietly. And they have had very consistent growth over the last, you know, 10 years. 15 plus percent on earnings per
Starting point is 00:11:28 share, recently reporting over 30 percent in earnings growth on their latest report. And this is not bad for a bank that trades at a discount to the big banks at only nine times earnings right now. Management in 2019 was guiding for 25% growth on their dividend per share until 2025. However, all banks were forced to stop doing buybacks and dividend hikes, which is going to resume shortly. So I expect some good results coming out of the banks very shortly. And this company as well, buybacks and dividend hikes can resume soon. So here's a chance to get an innovator skating to where the puck is going in digital banking at nine times earnings. And I do hold the shares.
Starting point is 00:12:12 I've never added to the position. I've just basically done nothing with it. But it's one of those companies that, you know, it's too small. It's too small and the profile of risk is too high because of the type of lending they're doing to all institutional buyers. So that's why it trades so cheap for something growing at earnings at 30% year over year very consistently. So that's equitable. So now my next name, it's Docebo, which is a company we talked about, I think year around this time if I remember correctly that's right about right so we had done a bit more of a deep dive in them so just as a refresher what they do so they're LMS so learning management software where they differ from some of the software you may
Starting point is 00:12:58 have used with your own employer is they tend to blend kind of a formal social and experimental learning with some AI as well. So they've really seen that organizations are valuing that more and more. And obviously with the pandemic, you can see that it's really important to have a good LMS system when it comes to your learning and development in-house. So Decibo has a market cap of $2.16 billion. That's in U.S. dollars. I kept that in USD even though it's traded on both the TSX and in the States. The reason why I kept it in U.S. dollar is their financials are all done in U.S. dollar, so it's just easier to do it that way. They had revenues of 62.92 million in 2020.
Starting point is 00:13:50 And for the most part, I'll be using 2020 figures throughout this. I may mention some Q1, Q2 figures as well, but I do like to look at things on a full year basis because it gives you a full picture. For the revenue, it's compound annual growth rate of over three years of 24 so growing quite quickly gross profits margin of 82 percent no debt on the balance sheet 217 million in cash as of march 31st 2021 uh further revenues in q1 of this year versus Q1 of last year, 21 million versus 13 million. So almost a
Starting point is 00:14:27 double. There has been some share dilution, but nothing too extreme, nothing to be that I would be concerned about personally. And they are free cash flow negative of a bit less than 4 million last year. And it is not trading cheaply. It's still trading at 30x time sales based on 2020 numbers I'm not trying to project here what their numbers will be in 2021 just so I don't get anyone saying like oh well this year they're on track no it's just based on 2020 numbers and in terms of their glass doors review very similar to Redfin in terms of the approval for the CEO. So pretty big sample, 94% approve of the CEO, who is Claudio Urba. And 79% would recommend the company to a friend.
Starting point is 00:15:15 So it sounds like it's a great place to work. Very, I think, fast-paced moving environment, some of the comments I had seen. So for those interested in a smaller fast growth that company listed in both canada and the u.s the chibo is an interesting play but i will mention this before we move on to your next name brayden it is very richly valued so this one will be extremely volatile so if you start a position in them, don't be surprised if you see 10, 20, 30, 40% swings. I wouldn't even be surprised 50% swings, to be honest, in the share price here.
Starting point is 00:15:52 Yeah, good point to mention anything, you know, super richly valued in a space that the market likes, which is remote learning, high margin software. But you know what? So last time we talked about DeCibo on the podcast, we had people from DeCibo reach out to us and they sent a little video about how to save the company.
Starting point is 00:16:21 And it was so cute. And it just seemed like a pretty good culture over there. And Claudio Urba, the CEO, has reached out to me on Twitter a few times. We really got to get him on the show. He's an Italian guy who lives in Italy. And then this business is listed on the NASDAQ and on the TSX. But a really interesting culture just from the quick take of listening to the employees and Claudio as well. So it's one of those businesses where if it's this richly valued, this small, and this growing this fast, you like to see that the founder is still in charge and has lots of skin in the game. All right, talking about companies with lots of skin in the game. All right, talking about companies with lots of skin in the game,
Starting point is 00:17:07 Topicus. Topicus is 4.35 billion in market cap on the TSX Venture. So that is TOI.V, because it's on the Venture. So Topicus is a mini Constellation software. Constellation software owns a significant portion of about 30% and has 50.1% of voting rights of Topicus. I did misspeak last episode. I said that they own 50.1% of Topicus. That is not correct. It is a significant amount, but it's not. It's 50.1% of the voting rights. So Topicus was a spinoff of CSU in January. As I explained last episode, shareholders of CSU were given shares of Topicus at $62 per share. Today they trade for $110. They officially started trading in February and they're up 74% and it's only August.
Starting point is 00:18:01 So this is starting to feel like CSU 2.0 in terms of returns. Okay, now here's where things get interesting. And I'm not going to talk about how fast you're going and this kinds of stuff, because we've talked about Topicus a fair bit and you can look it up. But I do want to talk about this from the perspective of Constellation shareholders. about this from the perspective of Constellation shareholders. And where things get interesting is that Topicus is if Mark Leonard, the founder of CSU, who is this bearded wizard billionaire Canadian who no one knows about, there's like three photos of him on the internet, and he has pressed the reset button to build another empire here with Topicus. But now he's able to leverage everything he knows and everything he's learned through building this $45 billion in
Starting point is 00:18:52 market cap company. So it's the CSU 2.0 that Mark has discussed in his latest president's letter. But with a lower capital base, which is also an obvious advantage, they're able to do bigger deals. They're not going to bother with the dividends because they can get you way better returns than if they're to pay that out to shareholders. They have much better organic growth and they have big brother Constellation software to help with deals. They're able to provide capital to do larger deals. help with deals. They're able to provide capital to do larger deals. They have the same decentralized merger and acquisition organism that deploys capital at a ridiculous efficiency. It's quite impressive to see how long they've been able to do this for. And I own shares of both. I was given shares from CSU and I've bought more shares on the open market.
Starting point is 00:19:47 When we were talking about incentives earlier, Mark Leonard and Constellation, their superpower is understanding incentives. And that's why they have this decentralized M&A organism. And it continues to get it done. I'm going to own it for a long time to come. And that's Topicus. A good breakdown. I mean, I know it mostly by you, so I'm And that's Topicus. A good breakdown. I mean, I know it mostly by you.
Starting point is 00:20:09 So I'm just going to take your word for that one. You know it because I talk about them every single episode. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real
Starting point is 00:20:45 people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about
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Starting point is 00:22:20 So innovative industrial properties. Innovative is a word innovative innovative really struggle with yeah yeah it's just the way it's pronounced uh like when there's words that you can say both are very similar in french and english that's where it messes me up what word is similar uh i mean you know vassio oh, in terms of like, yeah. Yeah. Oh, it's French. OK. Yeah. Yeah. Well, I like it.
Starting point is 00:22:47 That's usually the words I struggle with a bit more. So their ticker is IIPR. They are REIT, although they they target the marijuana or cannabis license market in the US. They have a market cap of 5.5 billion. This is a company I should have bought when I talked about it because they have been on a roll.
Starting point is 00:23:13 It is quite interesting to see how they do it. So I'll go over that. First of all, they have triple net leases. So triple net leases, for those who are not sure, is when a tenant is responsible for most of the costs on top of the actual lease. So they're responsible for structure maintenance, property taxes, insurance premiums. So these are just things that the tenants would be responsible for, and they tend to be very long-term leases as well. as well their strategy is they do a sell lease back strategy which ideally they they kind of have this on their website so they tend to target deals of five to
Starting point is 00:23:53 thirty million dollars there's has to be additional expansion capital available and they'll do lease terms of ten to twenty years so essentially though they'll target a company who owns a building, they'll buy it from them, and then they'll lease it back to them. So that's how they do it. The initial base rent is usually 10 to 16% on the total investment. There's an annual base rent escalation to 3% to 4.5%, so it does increase over time. They require a security deposit and corporate guarantee based on credit underwriting and the transaction timeline. Usually they'll want to be closing it within 30 to 60 days from sign purchase and sale agreement. So that's really
Starting point is 00:24:38 their big strategy. You think they would have a lot of debt. Actually, they do not have a lot of debt. They tend to finance it through share issuance. So when you look at their annual statement, it's a bit out of whack. You'll see the increase in share is really, really high. So just for context, they went from 3.5 million common shares in December of 2017 to 24 million in December of 2020. So that's like what like a 6, 7, 7x right there. So that's close to that's also close to a double in the share count just from 2019 to 2020. However the revenue for 2020 was 116 million versus 45 million in 2019 so you're seeing that they're actually increasing the revenue faster than that share account that's
Starting point is 00:25:29 really what's important the AFFO so adjusted fund from operation this is a metric that is typically used in REITs I won't go into too much detail but it's it's a good representation of their revenue and kind of adjusts for some of the lumpiness that they might see, especially if they, for example, would sell a facility and then buy a new one and things like that. So the AFFO per share that's diluted, so with the share dilution, was $5 in 2020 versus $3.27 in 2019. So that's a really important metric in this specific situation. I don't love usually the share metrics, but for them, it really applies very well because of that share dilution. You want to see how much it is per share. The dividend per share was 447 in 2020 versus 283 in 2019.
Starting point is 00:26:23 And if you look at their dividend increase and I say dividend but it should be distribution it's pretty amazing just looking at it per share it's crazy how much they've grown it over the years and they have a roughly 90 payout ratio which is fine for a read because they do have these triple net leases over a long-term period of times with rent escalation every year so that's not an issue on my end not seeing 90 there makes total sense and q1 of 2021 and q2 of 2022 sorry q1 of 2021 and q2 of 2021 at dividends of $1.32 per share and $1.40 per share so they're definitely on track to grow the dividend again this year compared to last year. Wow. Interesting what they're doing. I'll give
Starting point is 00:27:15 them an innovative for sure. And I can't believe how much the dividend and revenue per share has increased when they're diluting at this rate. And you mentioned that payout ratio. I mean, they're a REIT, right? They got to pay that out to be a REIT to begin in the first place. This is a perfect example. And my last one, number 10 on this list, is a perfect example of what you're seeing here, which is don't go for the competitive commodity space of weed growers. Just buy the ones that are selling the properties to the weed growers, right? That's been the better model so far. And it's been the better model in a lot of industries. And my last example, example i think is a good
Starting point is 00:28:05 example of that as well yeah and what i like is they seem to have found really a niche and they look from what i can see is they seem to be executing executing really well when it comes to that so um i mean look i think they now they have definitely a decent track record so it's it's one that i'm definitely interested on in for more of a dividend play but their stock has performed quite well in capital appreciation as well yeah simon we are on the sixth one here we've passed halfway but just selfishly can you explain triple net lease again? Like I know you said it the first time, but I'm trying to wrap my head around this and I don't know this term. Yeah. So triple net lease is just an easy way. So there's different type of net leases. Triple
Starting point is 00:28:56 net lease is really when the tenant is just responsible for pretty much almost all the maintenance and so on of the properties. So let's say if I rent you a house, for example, usually if you rent your house or an apartment to someone, utilities might be included. They might not. You're the owner. You're responsible for property taxes. You're also responsible for the maintenance. property taxes. You're also responsible for the maintenance, whereas the triple net lease, the tenant is responsible for structure maintenance, property taxes, insurance premiums. So it's really, it lowers the risk on the owner's part. So for example, Store Capital Group,
Starting point is 00:29:38 that company that Buffett owned, it's also a triple net lease. Yeah. Got it. Okay. Thank you for that clarification because I know you said it through the first time. I'm like, wait, what? So thank you for that. Yeah, I said it, but that's okay. People were confused with my accent. They got to relive it. Exactly.
Starting point is 00:29:56 All right. Next on the list, Angie Home Services, 5.4 billion in market cap on the NASDAQ. Angie, which is ticker Angie, A-N-G-I. They own Home Services marketplaces. They own Travo, MyHammer, WorkSpot, MyBuilder, Homestars, and Instapro names. Homestars is the one I know. I don't know the other ones. Maybe Homestars is bigger in Canada, but you don't know any of them. I know Homestars and I've seen their trucks. And I even know buddies that use it. Anyways, as of December 31st, 2021, it had a network of 208,000 service professionals. So that's on the other side of the marketplace. These are actual service professionals, trades people, carpenters,
Starting point is 00:30:45 plumbers ready to perform work. So it's Uber for contractors. And that's the niche they're filling. All right. They have had revenue growth over the last five years average of 38.49%. So the revenue over the last five years has been excellent. The gross margin is 85.7% because it truly is just the marketplace. And here's the kicker. It trades at 0.5 times sales. And you're like, what's going on here, right? And so I need to dig in more. I'm going to be totally candid on the podcast.
Starting point is 00:31:24 Why is this thing so cheap? And I've noticed that it's so cheap. It meets all my screens. And I think it has something to do with their spinoff from IAC. Like this used to be part of Interactive Corp, who has done tons of spinoff. You know, they spun off Angie, they spun off Match Group, which is like the Tinder owner. So this stock is very undervalued on the surface for something and growing this fast and benefiting from secular trends so it's this group of marketplaces for homeowners for contractors to find work and uh for you know and the other way around because it's that two-sided network now like i said i am familiar with homestars and i know buddies who are carpenters my cousin a couple other I know buddies who are carpenters,
Starting point is 00:32:05 my cousin, a couple other buddies from school that are carpenters. They build fences, they build stairs for people. By the way, it has been an incredible few summers for them, as we know, like that needs no introduction. And if they, you know, it fills some gaps if they're not going directly to jobs that they found on their own. It fills in some gaps in their calendar on Homestars if they find some jobs there. So marketplace businesses are awesome. And this is a perfect opportunity in this market, for my opinion, where technology is connecting service workers and prospective customers. It's growing fast. It has this interesting structure structure this legacy spin-off type thing
Starting point is 00:32:46 it's really cheap if you look at a stock chart of it it's really flat for a long time um and so something has to give in terms of some sort of catalyst for shareholders in this i know a lot of value investors just love this name because some catalyst is going to pick up and there's going to be some expansion on the multiples at some point. Unless I'm blatantly missing something here. I mean, the growth is incredible and it trades at halftime sales. Yeah, no, I mean, like I said, I don't know the company really, but it is definitely something that sounds like it should have some pretty big tailwinds. So anyone looking to invest in them, you'll probably have to figure out why they're trading so cheaply. I tweeted today, like, what am I missing?
Starting point is 00:33:39 I'm trying to do some diligence. And usually won't IAC kind of spin them off when they like they believe Dave can extract a lot of value exactly anyway yeah oh well we'll see yeah IAC is left with nothing IAC is literally left with nothing it just like chills at 10 billion market cap I don't even know what's part of the company anymore um so my next choice we did talk about this platform before Fiverr, the ticker is FVRR. So it's a platform for freelancers. So anyone can book a freelancer through the platform on demand. It was originally, it was founded in Israel. Now it has a market cap of 6.1 billion. Of course, there's been huge tailwinds for them with the pandemic.
Starting point is 00:34:27 A lot of pulled forward growth. One of their main competitors is Upwork. Oh my God. Upwork. There you go. I just had a blank for a second. This happened last time we talked about Fiverr. Yeah, so it's Upwork.
Starting point is 00:34:42 So they have revenues of $189 million for 2020 versus $107 million for 2019. Q2 revenues for this year increased 60% year over year. Their projections is that it should increase 30% to 38% for Q3 year over year. If you look at their stock chart, you'll probably notice that it took a pretty big nosedive in the last couple of weeks. I would venture to guess that it's because of that deceleration in revenue increases. And I know that management is basically saying, yeah, people are going back outside more. They think there's probably going to be a bit less demand compared to what was happening with the pandemic. Full year projections of 48% to 52% increase in revenues
Starting point is 00:35:32 versus last year for about $280 million in projection. Like I mentioned, a bit of deceleration. Their gross margin are pretty fantastic, so 83% gross margins. Free cash flow positive in 2020. So that's always interesting for companies that are still small and growing quite quickly. Something I love to see for companies being free cash flow positive or at the very least very close to it. And then there is some debt on the balance sheet through convertible notes, but it wasn't, I don't, I forgot to put the numbers, but I remember it wasn't too don't i forgot to put the numbers but i remember it
Starting point is 00:36:05 wasn't too big and again i went on glass doors just to have a look the ceo mika kaufman is uh very well rated 95 91 percent approve of the ceo and 88 percent would recommend the company to a friend so these are very good uh reviews and there's a large sample size as well there are some great israeli tech entrepreneurs out of tel aviv that they've been producing lately and fiverr is a good example of that now you brought up a what's that you said that and then i just thought about adam newman oh you're, you're right. The WeWork guy. Exactly, yeah. I listened to a podcast about him the other day.
Starting point is 00:36:49 It was, what a bizarre story, Adam Neumann from WeWork. Oh, yeah. Anyways. No, sorry. I just, I digress. No, you're right. I mean, Adam Neumann, what a like polarizing character he is. Anyways, this is an interesting company. And I've
Starting point is 00:37:07 used Fiverr, I've used it a couple times. And I've, I've gotten graphic designers from this last guy was from Poland, he did a great job. And it was like, this aha moment people have. And it's this freelance economy that I'm talking about, like with Angie, right? They're benefiting from this freelance economy, which is connecting consumers and service workers on this two-sided network. So it's a great idea. The thing that has caused me to not invest is I don't like the platform. I don't love the product. Like I love being able to be connected to these people who do great work for such a cheap price, but I don't like the UI. I don't like the UX. It's kind of weird when you search something, there's no real way to know if you're
Starting point is 00:38:01 getting a good deal or the product's good compared to the like 30 million other people who do the same job of graphic design on the site so i just haven't quite figured that out like what makes the product great but if i was able able to answer that question or they changed it or they made it better which they very well could um i might be interested in the business yeah if i were to you know to dab my toes in that space and start an investment, I probably just would do a small position equally weighted in Fiverr and Upwork. They're really the two market leaders there. I haven't looked at Upwork recently, but that's probably the approach I would do. Upwork's a little different. Like Fiverr is,
Starting point is 00:38:47 would do upworks a little different like five fiverr is um you have a job so what they're called gigs so you say i i want to do this uh graphic design gig so you'll find you'll find someone on there and you pay them and then they do it you're allowed a couple revisions they deliver the work uh whereas upwork is connecting you to freelancers. So it's connecting you to the person versus connecting you to the specific job. That's the main nuance I've seen between the two platforms. And I kind of like connecting to a freelancer because then it'll be easier for me to hire them again in the future. It reduces some of that friction versus going ahead and ordering their gig again, if that makes sense. Yeah, fair enough. Yeah. I mean, they still very, very closely connected in terms of market. That's why I think for me, it would just be,
Starting point is 00:39:37 you do the basket approach. I mean, I'm sure there's competitors, but to me, they're the two biggest name in this space. competitors, but to me, they're the two biggest names in this space. you can buy all North American ETFs, not just a few select ones, all commission-free, so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit Questrade.com for details. That is Questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away.
Starting point is 00:41:04 Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. That is Airbnb.ca forward slash host. Number seven.
Starting point is 00:41:50 I was talking about earlier about how there's, you know, what was your example? I was like, yeah, an innovative industrial property. It's like, this has been a better stock to own than any of the weed producers lately. They're the ones, you know, renting out the space for the weed producers. TMX Group, ticker X on the TS tsx 7.8 billion in market cap why dig gold when you can sell the minor shovels why buy airline stocks when you can buy the airports the exchanges which is tmx operates the toronto stock exchange and the tsx venture has been an awesome business. Lots of public listings lately, lots of trading volume, and the exchanges have really wide moats. Check out the stock chart for the public listing of NASDAQ. It's beat most of the names inside the NASDAQ 100,
Starting point is 00:42:41 which is kind of ironic. I'm a big fan of these extremely wide moat financial service businesses that have been dominant for decades and successfully pivoted and benefited from technology. These are these old businesses, yet they've been benefactors of a shift in technology because their margins have actually improved while providing their same super wide moat business. So look at S&P Global, ticker SPGI. They manage the S&P 500 index or Moody's Corporation. These companies have super wide moats. They hold the power of credit ratings that can make or break any company by just upgrading or downgrading their debt. that can make or break any company by just upgrading or downgrading their debt.
Starting point is 00:43:30 Even countries, they can influence a country or a company's ability to raise money from debt markets overnight, which is kind of crazy to think about. So as for TMX, the TSX Venture and the TSX itself have been great assets, and they're growing really well. And they're pretty much impenetrable. I can't really think of a disruptive force here. I honestly can't think of one. It's steady as she goes. You're not going to see some groundbreaking growth, but it gets it done. So the exchanges like TMX, ICE, which owns the New York Stock Exchange, or NASDAQ, who of course owns the NASDAQ, have been some of the best stocks around and many people don't even know that they're publicly traded go check out ice or nasdaq stock
Starting point is 00:44:13 like throw out a 10-year chart on that thing and it is one of the best looking compounders you can find yeah definitely they've they've benefited a lot for um like intercontinental exchange from derivatives to like futures and stuff like that uh that kind of trading like the high frequency stuff yeah yeah clearing houses that's it yeah so um no very interesting pick i've had my eye on a very long time for uh tmx never pulled the trigger but it's not gonna you know it's going to be earth shattering stuff, right? It's a slow growth stalwart type business. Yeah, that's it.
Starting point is 00:44:52 So now on to my next name. I know you did not know this one before I brought it up. I still don't. This is my first time hearing of it. So hit me up here. So it's called Lemaitre Vascular. I'm sure I'm pronouncing it incorrectly, but I'm going to use my French pronunciation because it is a US-based company. The ticker is
Starting point is 00:45:13 LMAT. So Lemaitre Vascular is a global provider of medical devices and human tissue cryopreservation, which is basically putting things at a very low temperature to avoid deterioration. The services are largely used in treatment of peripheral vascular diseases and stage renal disease and to a lesser extent cardiovascular disease. About 80% of their products are used by vascular surgeons and they tend to operate, and this is straight out of their annual report, they'll tend to operate in low rivalry niche segments. That's exactly what they look for. So they want to produce product or service, well, it's typically products that have $200 million in annual worldwide revenue. in annual worldwide revenue. The reason why they target that is they know that large medical device manufacturers won't target these niche markets because it's
Starting point is 00:46:11 just not worth it. If you have a Johnson & Johnson for example or pick your large medical device manufacturer, $200 million in annual revenue will not move the needle for them. They won't even care so they just don't go to those markets so they strive to be some of the top performers in these small markets or have the most market share they have a direct sales force and they they're a bit of a growth through acquisition and to a lesser extent they do as well are in the in-house. So the numbers look like they have 1.23 billion market cap. Again, this is all USD. Revenues 129 million for 2020. If you look at their chart, it's actually remarkably consistent. It's not going to be a crazy grower, but it's like steady as she goes. I did not see any kind of dips for COVID-19 compared to previous years. Just kind of continued compound annual growth
Starting point is 00:47:06 rate of revenues of 10% over the last five years, 65% gross margin, very low debt on the balance sheet. They are profitable on earnings and free cash flow basis, 21 million in net income for 2020 31 million in free cash flow for 2020 very minimal dilution and they pay a quarterly dividend of 11 cents per share which is 0.77 percent yield so it's not very high you can make an argument that maybe they could use that money to grow a bit faster i know the ceo i believe is the, but I'm not 100% sure. Anyways, he's part of the family that founded the company, and you'll see it with the name. His name is Georges W. LemaƮtre. The biggest red flag, I would say here, is I pulled in the data again from Glassdoor. It does not look good. It's not a big sample.
Starting point is 00:48:10 There's about 30 reviews, but 23% approve of the CEO. So remember what we talked about a bit earlier was in the 80s, 90s. 29% would recommend the company to a friend. So it's not, and I was reading a little bit of the comments too, just to get a sense of what people were saying. And for the most part they say that the company is very frugal um they push people a lot long work hours um so that's obviously nothing that's not something great to see but their numbers look pretty good like it's just yeah it's kind of a capitalist baby i Simon's a capitalist, baby. No, I mean, I'm like, obviously, I, you know, I love where I work.
Starting point is 00:48:48 So I think for me, it's really important to have employees that are happy. But it's kind of, I want it. I still wanted to put it because all the numbers I was talking about, I thought were pretty good. But then I pulled that off Glassdoor. I'm like, oh, my God, this is not great. That's pretty bad. I've never seen a snapshot of Glassdoor this bad. Yeah, I mean, it's only 30 reviews.
Starting point is 00:49:08 So maybe it could be just a sample sizing type of deal where it's just employees that left that were a bit disgruntled for majority. I did see some positive comments in there as well. So take that with a grain of salt because some of the ones I mentioned earlier had like, you know, six, seven, eight hundred reviews. So when your sample size bigger, it makes a bit more sense. So something to keep an eye on, but it's definitely a smaller cap and it's profitable, which does not happen that often. Yeah, no, good point. And you're seeing Simon pull up these Glassdoor ratings for all these companies because they are smaller. They're mid-cap or small-cap businesses.
Starting point is 00:49:48 And the culture of a company as they're smaller does matter. And it matters a lot more, and I would argue quite a bit more for these smaller companies. And the reason for that is culture is important at every company, but it's really important for when there's a smaller team, you know, less than 500 employees, less than a thousand employees, because like Warren Buffett says, you know, buy a business so good that an idiot can run it because one day an idiot will run it. That is for well-established mature companies. the team the founder the you know the executives the culture of the business for a smaller company that has not been proven yet it's not mature enough that if you know someone was to stop driving the bus it wouldn't crash versus a
Starting point is 00:50:38 company like really really mature like coca-cola you know that thing that thing's gonna keep crushing it no matter who's in the in the driver's seat from my opinion anyways so that's that's a good point to bring up yeah and for them i mean they've been listed for quite some time too so if you ever if anyone looks up at their chart i didn't pull when they were founded but i know they've been listed for a very long time so it's just been kind of a small cap growing over time. And, you know, it's not going to blow you out of the water, but the chart, if you just look at it,
Starting point is 00:51:11 the overall returns over that long period of time, it looks pretty good. I don't know how it did versus the market, but, you know, steady as she goes, it's probably the best thing for them. Like the best way to sum it up for the mind vascular. I heard human tissue cryo preservation services in your description there and i just instantly thought of austin
Starting point is 00:51:31 powers that's the only thing i thought of i i had to actually google what that meant because i was like reading it i'm like okay he's probably gonna ask me what it means so i need to definitely google oh don't worry i've seen austin powers i'm good all right number 10 we have finally ran the marathon of this 10 list episode last one here descartes group dsg i'm assuming that's a french name like simon am i saying that this guy descartes like how would you say that if it's french i would say decat that sounds way more right let's go with that so i'm gonna call it dsg for now their flagship asset the global logistics network aka gln is a logistics communication software that has helped clients connect with their supply chain to improve their logistics network and communicate seamlessly.
Starting point is 00:52:29 This software has helped many businesses improve their network and increase efficiency. DSG primarily grows by acquisitions. They've made 27 acquisitions over the last seven years. They integrate them into the business, provide new services and complement them. So it's a buy and integrate type model instead of let them run autonomously because they're trying to tack on more features onto their global logistics network, that GLN. It's a really small Canadian compound. I mean, it's a $6 billion in market cap now, but it's one of those 10-year revenue charts that you're talking about that just don't miss a beat. Every year, it's so nice
Starting point is 00:53:11 on the eyes. It's just a little bigger every time. They've grown revenues at 11% on the last five years. Historically, it has been over 20%. So we've seen some slowdown. I don't know why, like, we'll have to see like, the business is accelerating again, really well right now with logistics being such a good secular business to be in. And it really comes down to how many acquisitions they're making, because that's what's going to really move the needle. But overall, for an acquirer, there's lots of organic growth as well. And that's why it's been such a good stock to own. Gross margins about 75%, EBITDA margins of close to 40%. So this thing's really profitable. And very, very good balance sheet, tons of cash. They're like two current ratio so they're expensive at over 20 times sales which is important to note but um that compared to other canadian tech consolidators 20 times sales is
Starting point is 00:54:13 quite a bit and it's been a great stock i know chuck acre has owned it for a long time of acre capital management and i always look at his 13fs he's For every compounder bro out there, you should read his work on his site at Acre Capital Management. He has owned this thing for a long time. And he, for some reason, has had a knack of holding Canadian gems that were really small and sticking with them, like Constellation Software. They actually own such a significant part of Topicus because their stake in CSU is so big, the shares they got from the spinoff were huge alone. Anyways, that is DSG. If you want a full report on DSG, Stratosphere has one. It is in the top pick segment and we break down the business in full there in an easy to understand five minute type primer five minute type primer. Um, so even if you're not a
Starting point is 00:55:05 CFA, you'll understand the business. All right. Thank you guys so much for listening. Hope you're liking the two episodes per week. The feedback's been exceptional. We'll keep doing it. Uh, we're going to keep grinding. Uh, you know, these types of episodes are obviously a lot of work, but we love doing it. Um, and that does it for this week, guys. We'll see you later again this week. We don't ask that often. Just for a little bit to help the podcast, which is review it, share it with a friend. If you haven't shared the podcast with someone who could benefit from it, I just want to read something really quick.
Starting point is 00:55:48 Philippe, one of our listeners, he said, because of the podcast, along with some knowledge from other books, his experience at his job, I'm not going to go into that because it's personal. He's talking about how he built this $10,000 TFSA since the beginning of the pandemic. I have never had so much money as I have now.
Starting point is 00:56:06 I feel so good about it. Thank you for taking the time to do the podcast and talk about what you talk about. I used to live paycheck to paycheck and now my savings is growing and I have an emergency fund and a down payment on a house. Thank you. It really changed my life. Dude,
Starting point is 00:56:24 like thank you so much. I sent that to Simon. It's like those kinds of messages make this all worth it. So thank you so much. Share it with a friend because you know what? Apparently it changed Philip's life. Maybe it'll change someone else's as well. Thank you so much for listening. We'll see you soon. Bye-bye. The Canadian Investor Podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.

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