Investing in a micro-cap stock is the easy part: get an online broker, set up an account, and make a transaction. You just have to find a listed micro-cap stock worthy of your trust. That is the where we come in.
First, getting listed on one of Canada's stock exchanges does not always mean an initial public offering (IPO) with a hefty valuation and good-looking share price. Many small-cap and micro-cap companies fly under the radar and get listed on exchanges such as the TSX Venture or CSE. Finding these future superstars is not obvious.
Fortunately, we have CEO.ca. It specializes in Canadian stocks, providing timely information, news releases, and a place for Chief Executive Officers (CEOs) and investors to interact. You can find some micro-cap and small-cap diamonds in the rough with various ways to sort stocks on this platform. We have put together a short article about identifying and investing in micro-cap stocks in Canada.
What is a micro-cap, nano-cap or small-cap stock?
If you are not familiar, micro-cap stocks are companies with small valuations. A small valuations is from $50 million to $300 million. Under $50 million is considered a nano-cap, and from $300 million to $2B is deemed to be a small-cap.
However, the share price is something else entirely. Generally, these stocks have a smaller share price to cover their share float needed. The “cap” only refers to the company's capitalization or the total value of the shares on the market.We will generally use micro-cap for ease, referring to nano and small unless otherwise noted.
4 promising Canadian crypto micro-cap stocks to watch
You may notice some themes in our picks; the digital world is increasingly utilized. Traditional companies are being disrupted by start-ups leveraging new technology to be more efficient and create a competitive advantage. Today our picks are digital finance and cryptocurrency, two exciting and related sectors.
Intellabridge Technology Corp. – KASH.CN
Intellabridge Technology Corporation, is a nano-cap fintech blockchain company. It develops blockchain solutions for various sectors including financial technology, marketplaces, and virtual reality social networks worldwide. The company offers Kash, a decentralized financial peer-to-peer blockchain banking application with chequing, savings, transfer, and payment solutions.
Intellabridge offers one of the best blockchain-based crypto credit cards. It also has ChargaCard, a P2P payment processing platform for the informal credit markets. The company's products also include Cryptanite mobile app, a peer-to-peer cryptocurrency marketplace; and BitDropGo, an augmented reality advertising platform.
Intellabridge Technology Corporation is headquartered in Boulder, Colorado. The company has 72M shares outstanding, insiders own 30%, and the company raised CAD 10M in July 2021. KASH is currently using a third of the raise for marketing purposes. The company is presently in its expansion phase as there will be around 344M estimated users of neo-banking by 2025.
Hive Blockchain – HIVE.V
HIVE Blockchain Technologies Ltd. is a small-cap cryptocurrency mining company in Canada, Sweden, and Iceland. It engages in the mining and selling of digital currencies, including Ethereum (ETH), Ethereum Classic (ETC), and Bitcoin (BTC). The company was formerly known as Leeta Gold Corp. and changed its name to HIVE Blockchain Technologies Ltd. in September 2017. HIVE Blockchain Technologies Ltd. was incorporated in 1987.
The company has 410M shares outstanding. This number seems high at first glance, but this is because the company closed a $115M financing in November 2021. BMO participated in the funding, making it the first major Canadian bank to join in a crypto data centre equity financing. Its price-to-sales ratio (P/S) ratio is at 3.2. As the company's valuation depends mostly on BTC and ETH, any significant movement will impact the company's market cap.
For their last earnings, the company reported that its revenue rose to $68.2 million. That is a 30% increase compared to the previous quarter and 397% since the same quarter the previous year. Net income reached $64.2 million, up 7% from the prior quarter and 273% from the last year.
Digihost Technology Inc. – DGHI.V
Digihost Technology Inc. is a micro-cap blockchain technology company. It has operations in cryptocurrency mining for its account and provides hosting services to cryptocurrency mining customers. The company is headquartered in Buffalo, New York.
The company only has 28M shares outstanding and has a 4.5 P/S ratio. Even if there is a low float, the company has a high trading volume (130k daily average). The company is also traded on the NASDAQ, allowing institutions to loaf shares of the company. Insiders hold 14% of the shares, and institutions own 7%.
DGHI also released strong earnings on March 28, 2022, with revenue of $24.95 million, an increase of 602% over 2020, earning before interest, taxes, depreceiation and amortization* (EBITDA) of $14.01 million. Adjusted for share-based compensation this is an increase of 1,601% over 2020. THe company also has aworking capital of $30.70 million, an increase of 1,760% over December 31, 2020.
Banxa Holdings Inc. – BNXA.V
Banxa Holdings Inc. operates as a payments service provider for cryptocurrency exchanges. In addition, the company offers a conversion widget/API product to third parties who require fiat on-and off-ramps that allow them to embed its product into the crypto ecosystem. The company is headquartered in Melbourne, Australia.
The company has strong fundamentals. BANXA only has 45M shares outstanding for 52M shares fully diluted. It also has a tiny float as the top 10 shareholders control more than 50% of the float with 25% owned by the company. Many catalysts are coming for the company, including NASDAQ uplisting by H1 2022 and its growing number of partners. However, the stock price is low, with a P/S ratio of 1.2, meaning the company is severely undervalued.
For their last earnings, the company reported AUD 594 million (USD 431 million) Total Transaction Value (TTV) up 461% year on year, revenue of AUD 28 million (USD 21 million) up over 522% year on year, and Adjusted EBITDA loss of AUD 1.3 million (USD 0.9 million). Banxa plays an essential role in the crypto niche, providing technology solutions for exchanges. Cryptocurrency platforms in Canada will depend on tech like Banxa’s to make their platform better and more secure for users.
Investing in micro-cap crypto stocks
Micro-cap crypto stocks are exciting because of their potential for a return. These companies have not been widely accepted by more prominent investors such as institutions, so they must rely on retail investors and private placement before they get their moment in the spotlight. Of course, poor management means that the company can also wither away into obscurity. Always invest with caution.
How to find micro-cap stocks to buy
Finding promising micro-caps is easy with the tools we have at our disposal. There are main criteria for finding good micro-caps. Here are things to look for before buying:
- Has a promising business model
- Product just to market or almost to market
- Has or receives private placement
- Insiders hold a larger ratio of the stock
- Its investor relations (IR) shares information about the company regularly
When companies are undervalued or just starting to seek investment, there is a period where it will be very advantageous to purchase the stock. Once companies get exposure, their stock can take off quickly, often over-extending, then selling off to a realistic value. This also depends on market conditions and other factors.
What are the risks of micro-cap stocks?
The challenging aspect of micro-cap stocks is the risk. Although these companies have a promising future, there is much more uncertainty than with businesses further along their life cycle. Since these are start-up companies, they carry several characteristics which make them more volatile.
Product or service not-yet-to-market
These companies are still developing their product, or it has not been launched to the public yet. So they have no track record of revenue or how the market will accept the product. This can be risky as companies can spend extra cash making revisions to a product that didn't live up to its potential.
The company is often very ambitious and has a great product serving a needed market demand, such as the companies above. Then, if all things go well, the company fills the demand and becomes successful. But we all know many forces in the market can derail even the most well-planned business. Companies like KASH and BNXA have products to market, but their market penetration is low. However, their technology is promising, and the business model is sound; now, it's just about market development.
Since these companies often trade at small P/S ratio and have small market caps, they are susceptible to price swings and extra volatility. $1 million worth of stock of a $20 million cap company is a much larger ratio than if the company was worth $200 million.
Here is the most significant risk for companies such as HIVE and DGHI, which are primarily dependent on the price of an underlying asset. In this case, the asset is cryptocurrency values. If the market price of the crypto they hold falls, their total assets and their earnings potential can quickly diminish.
Less public transparency
As investors, we know it's in a company's best interest to put out reliable, accurate and timely news releases and company updates. CEO.ca makes this incredibly easy for both companies to share information and investors to consume it. Companies that provide regular and accurate updates are often more trusted by investors and generally receive more investment.
Often though, there are companies that are incredibly poor at IR or have no new information to put forward. Investors do not ususally trust these companies because of perceived secrecy. Some might see the companies as pump-and-dumps or insider trading schemes.
How do our micro-cap crypto picks fit in?
The companies we shared with you today range from nano to small cap companies. These are early-stage companies which futures in their sectors. Blockchain stocks in Canada are one of the newest opportunities you can find on the market; the return potential of these companies could be significant. So do your research and consider the risks of investing in these smaller companies.