Friday , 29 September 2023

The EV/EBITDA Ratios of These 5 Canadian Small Caps Suggest They Deserve Investor Attention

Some experts call the EV/EBITDA ratio the “Golden Ratio” andkey to profits consider it the best metric for finding value. Why? Because over the past 20 years the companies with the lowest 10% EV/EBITDA multiples have returned 2,227% compared to 500% for the S&P 500. Today we have identified 5 Canadian small caps that are trading below 5x EV/EBITDA and have an average ROE of greater than 15% over the past five years and, as such, deserve investor attention as potentially undervalued stocks.

The comments above & below are edited ([ ]) and abridged (…) excerpts from the original article ritten by
[Editor’s note:

  • Enterprise value is market capitalization, plus debt and a couple other things, minus cash and cash equivalents.
  • EBITDA is essentially net income with interest, taxes, depreciation and amortization added back to it.
  • EV/EBITDA is the multiple that Wall Street uses when figuring the theoretical takeover value for a company. In other words, how an investment banker might look at it.
  • Academic research has shown that stock selection based on EV/EBITDA outperforms P/E and price-to-book value methodologies on a risk-adjusted basis.]



1. Bird Construction Inc. (TSX: BDT)
Construction & Engineering

Bird Construction Inc. operates as a general contractor in the Canadian construction market focusing on projects in the industrial, commercial and institutional sectors of the general contracting industry.

  • In the industrial sector, it constructs industrial buildings and performs civil construction operations, including site preparation, concrete foundations, underground piping and earthwork for clients operating in the oil and gas, and mining businesses.
  • In the commercial sector, its operations include construction and renovation of shopping malls, big box stores, office buildings, and selected condominiums and apartments….
    • Market Cap: $402,209,429
    • Total Revenue (LTM): $1,589,868,000
    • Debt to Equity (LTM): 0.07
    • YTD Price Change: 4.4%
    • EV/EBITDA: 3.52x
    • Avg. 5 Yr ROE: 18.5%




2. High Arctic Energy Services Inc. (TSX: HWO)
Oil Related Services and Equipment

High Arctic Energy Services Inc. is a Canada-based company focusing on providing contract drilling, completion services, equipment rental and other oilfield services to the oil and gas industry in Canada and Papua New Guinea…

  • Market Cap: $260,905,591
  • Total Revenue (LTM): $208,000,000
  • Debt to Equity (LTM): 0.11
  • YTD Price Change: -7.5%
  • EV/EBITDA: 3.65x
  • Avg 5 Yr ROE: 25.3%




3. Lucara Diamond Corp. (TSX: LUC)
Non-Gold Precious Metals & Minerals

Lucara Diamond Corp. is a diamond mining company focused in Africa. The Company’s business consists of the acquisition, exploration, development and operation of diamond properties…

  • Market Cap: $1,227,651,663
  • Total Revenue (LTM): $396,810,838
  • Debt to Equity (LTM): 0.00
  • YTD Price Change: 5.6%
  • EV/EBITDA: 4.53x
  • Avg 5 Yr ROE: 20.7%



4. Mandalay Resources Corp. (TSX: MND)
Diversified Mining

Mandalay Resources Corporation is a gold, silver and antimony producer engaged in mining and related activities, including acquisition, exploration, extraction, processing and reclamation…[in] Australia, Chile, Sweden and Canada…

  • Market Cap: $243,633,964
  • Total Revenue (LTM): $249,184,249
  • Debt to Equity (LTM): 0.29
  • YTD Price Change: -32.5%
  • EV/EBITDA: 3.63x
  • Avg 5 Yr ROE: 15.4%




5. Spin Master Corp. (TSX: TOY)
Toys & Children’s Products

Spin Master Corp., formerly SML Investments Inc., is a Canada-based children’s entertainment company…engaged in creating, designing, manufacturing and marketing a diversified portfolio of toys, games, products and entertainment properties…

  • Market Cap: $975,633,800
  • Total Revenue (LTM): $1,550,431,722
  • Debt to Equity (LTM): 0.49
  • YTD Price Change: 24.3%
  • EV/EBITDA: 4.25x
  • Avg 5 Yr ROE: 74.5%
Disclosure: Neither the author nor any of the principals at Small Cap Power, or their family members, own shares in any of the companies mentioned above.
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