Business News Network, a cable channel owned by Bloomberg in Canada, has a daily program called "Market Call." One regular guest is a portfolio manager, Bruce Campbell, from a firm called Stone Castle Investment Management Inc. based in Kelowna, British Columbia. Campbell specializes in small-cap growth companies and has always some interesting "off the beaten track" ideas to discuss. On the program on Sept. 13, he discussed three ideas that he said were his current "top picks." These are my notes from the program and follow up from the company's websites and GuruFocus.
Yerbae Brands
Yerbae Brands Corp. (TSXV:YERB.U, Financial), which is based in Scottsdale, Arizona, makes and markets plant-based energy beverages. It has drink products with zero sugar, calories or carbs and is powered by a natural caffeine source that uplifts without jitters, shakiness or a post-drink crash. The company offers an enhanced experience that stimulates the body and focuses the mind without the jitters and crashes typically associated with energy drinks.
Campbell said the product is "an all-natural, caffeine-infused, sugar-free energy beverage within the $21 billion U.S. energy drink market. Established in 2017 by entrepreneurs who possess expertise in the energy drink and beverage industry, having worked with notable companies like Coca-Cola (KO, Financial), Monster (MNST, Financial), Nos and Sobe. The Yerbae team is actively expanding its distribution network across the United States, partnering with industry giants. This expansion has resulted in an impressive four-year compound annual growth rate of 58% in revenue."
The company's market cap is quite small at $102.5 million and is very much a startup burning cash. However, revenue has grown impressively in the last six quarters.
| 2023-06 | 2023-03 | 2022-09 | 2022-06 | 2022-03 | 2021-12 | 2021-09 | 2021-06 | |
| Revenue $ M | 4.1 | 3.52 | 1.92 | 1.85 | 1.53 | 1.05 | 1.39 | 1.55 |
| Revenue % Growth RevQ q/y | 168.0% | 235.2% | 38.1% | 19.4% |
In summary, Yerbae is startup with revenue forecasted to grow 48.85% per year. Revenue grew by 95.9% over the past year and analysts expect the stock price will rise by 63.8%. Todd and Karrie Gibson founded this company and own about 21.66% of the shares.
Rekor Systems
Campbell's second pick is Rekor Systems Inc. (REKR, Financial), a technology company based in Columbia, Maryland that specializes in providing intelligence for roadways and data-driven insights into mobility. With a workforce of 267 full-time employees, the company went public in August of 2017. Its primary focus is tackling critical challenges within transportation management, enhancing public safety and serving essential commercial markets. Leveraging a real-time intelligence platform fueled by extensive data access, artificial intelligence-powered software and intelligent optical devices at the edge, the company harnesses its industry knowledge and advanced proprietary technologies to offer insights that enhance road safety, efficiency and sustainability. This, in turn, contributes to the development of safer, more intelligent and interconnected cities and communities.
Rekor Systems caters to various market segments, including intelligent transportation systems, smart mobility, traffic analytics, incident detection and location systems, traffic and parking management, smart cities, vehicle regulatory compliance programs and more. The company's subsidiaries encompass Rekor Recognition Systems Inc., Southern Traffic Services Inc., and Waycare Technologies Ltd.
Campbell said Rekor's systems collect the data and then uses AI and machine learning to make the information more useful to customers, which can include transportation, law enforcement and private businesses.
Campbell gave an example of the use of Rekor's system. Police in New York recently apprehended a drug trafficker after a traffic stop. During the vehicle search, they discovered a significant amount of crack cocaine, a firearm and a lot of cash. The subject later pleaded guilty to drug trafficking. Authorities used Rekor, which specializes in analyzing regional traffic patterns. Using AI integration, the company's roadway intelligence platform assessed the subject car as suspicious.
Rekor collaborates with law enforcement agencies and businesses across the country, using its software to process data from a county-wide automatic license plate recognition system with 480 cameras scanning 16 million vehicles weekly. This system records license plate numbers, vehicle makes and models, allowing police to track vehicle trajectories. In this case Rekor's algorithm analyzed his multiyear travel patterns, revealing frequent trips between Massachusetts and specific areas in upstate New York. These routes were known for drug trafficking activity, involving conspicuously short stays, leading the program to flag the subject as a likely drug trafficker.
The company has market cap of $256 million and is not yet profitable. Rekor has significant recurring revenue from subscription services, as shown in the breakdown chart below. Revenue has been ratcheting up impressively with triple-digit quarterly growth compared to the year before.
| Revenue | 2023-06 | 2023-03 | 2022-12 | 2022-09 | 2022-06 | 2022-03 | 2021-12 | 2021-09 |
| Rev $ M | 8.56 | 6.19 | 4.55 | 7.43 | 3.7 | 2.98 | 0.47 | 2.62 |
| REKR Revenue % Growth RevQ q/y | 131.4% | 107.7% | 868.1% | 183.6% | -13.3% | -29.4% | -83.5% | 23.0% |
Analysts expect revenue to grow by over 60% next year. Insiders are also buying the stock, which is good sign.
Quipt Home Medical
Campbell's final pick is Quipt Home Medical Corp. (QIPT, Financial), a Wilder, Kentucky-based health care services company focusing on the management of chronic illness with a specialty focus on home-based respiratory care. The company, which operates in 26 states with 115 locations in the U.S., has been growing via acquisitions and organically. Campbell said the stock trades at a significant discount to other North American peers.
Quipt provides in-home monitoring equipment, supplies and services to patients. The company's services consist of daily and ambulatory aides, power mobility, INR self-testing, respiratory equipment rental, home ventilation, oxygen therapy and sleep apnea and PAP treatments.
Over the past 25 years, there has been a significant increase in the number of sleep apnea patients in the United States, with some studies suggesting a staggering 70% rise during this period. This surge is largely attributed to the strong correlation between obesity and the development of sleep disorders. As a result, the demand for assistance with sleep apnea is expected to continue its upward trajectory. While the need for sleep apnea assistance is on the rise, accessing and monitoring such assistance can be challenging. Quipt Home Medical offers a convenient sleep testing system that enables patients to conduct tests in home and easily return the results by mail. These test results are then evaluated by one of their board-certified sleep doctors and securely shared with the patient. Should the patient's physician prescribe an assistive airway device, Quipt Home Medical will also provide the necessary equipment and support.
The GF Value Line also shows Quipt is selling at a substantial discount to its fair value, warning that it may be a possible value trap.
The company has impressive growth in free cash flow over the last five years and is selling at a price-to-free cash flow ratio of 8.37. Owner earnings are also impressive.
Recent revenue growth has been very impressive, with high double-digit quarterly sales growth from the year before.
| Revenue | 2023-06 | 2023-03 | 2022-12 | 2022-09 | 2022-06 | 2022-03 | 2021-12 | 2021-09 |
| Rev $ M | 60.28 | 58.12 | 40.82 | 40.09 | 36.69 | 33.55 | 29.53 | 29.12 |
| QIPT Revenue % Growth RevQ q/y | 64.3% | 73.2% | 38.2% | 37.7% | 39.8% | 38.4% | 29.7% | 48.1% |
The company is profitable and earnings are forecasted to grow over 50% next year. A member of the board of directors made a purchase of 1,000 shares in May.
