Four ‘Internet of Things’ companies to watch
James West is an investor and the author of the Midas Letter, an investing research report focused on small cap companies. The views expressed here are his own and are presented for general informational purposes only — they should not be construed as advice to invest in any securities mentioned.
The Internet of Things, the era in which all of our devices are connected to the internet in some form, and data and instructions transmitted among them through WiFi, Bluetooth, RFID and cellular signals, has arrived.
Legacy technologies are evolving, and new ones are being developed in the labs of universities and corporate research facilities throughout the world. The race to the next Unicorn ($1 Billion+ market cap startup) is on.
In Canada, that race is underway too. And already, there are a handful of companies who are seeking to capitalize their way to Unicorn glory through a public listing on the Toronto Venture Exchange.
Here are a few, who, by virtue of their product and service offerings, are real Internet-of-Things contenders, and thus bear watching by investors in search of the Next Big Thing.
1. BeWhere Holdings Inc.(TSX.V:BEW)
BeWhere is a company founded by serial entrepreneurs Owen Moore and Chris Panczuk who are both experienced telematics technology developers. Moore sold his previous company, Grey Island Systems International, a manufacturer and seller of real time internet-based vehicle monitoring and predictive arrival systems, for just under CA$40 million in 2009. Panczuk was head of Enterprise Sales at BSM Wireless until 2014.
BeWhere’s flagship product is a Bluetooth-enabled beacon that is easily mounted on everything from pallets to portable equipment, and can transmit metrics such as location, temperature, exposure to light, vibration and acceleration in real time and to any Bluetooth enabled device.
BeWhere became public by way of reverse merger in January this year, and currently supports a market cap of approximately $6 million with 40.3 million shares outstanding. The company began selling its beacons commercially in July 2015 and reported sales in the first couple of months of approximately $100,000, but CEO Moore stated during a recent Midas Letter CEO Podcast that he expects $1.2 million to $1.5 million in sales for 2016.
2. Healthspace Data Systems Ltd. (CSE:HS)
Healthspace is taking the function of inspecting facilities that require certification by government agencies to operate into the 21st century. As was recently demonstrated by events at Chipotle Restaurants in the United States, restaurant inspections are crucial to the safe operation of foodservice companies. Healthspace CEO Warwick Smith says that if Chipotle had been using his company’s platform, they would have had a much more rapid awareness of the problems, and also would have been able to deploy a system-wide approach to dealing with the issues, as opposed to reacting to events after it was too late.
At the heart of the platform is software that runs on a tablet that transforms the legacy form-based process into a data-streamlined electronic process that permits Big Data analytics to find emerging issues within such facilities.
The company makes money selling the software, and earns recurring usage fees from state, federal and municipal agencies. But it plans to sell the inspection data to vendors of solutions for establishments that have issues with compliance.
For example, if a restaurant had a rodent problem, evidence of that would become instantly available to management upon completion of the inspection. Pest control companies who pay Healthspace for access to the data would be in a position to contact the enterprise, and effect a sale.
The company’s software is currently in use by over 300 government agencies in the U.S. and is used in 30,000 restaurant inspections per month, and that number is growing monthly, according to Smith. There are Fortune 500 companies collecting this data manually now, but with the Healthspace offering, they would have access to inspection outcomes within 24 – 48 hours.
Healthspace Data Systems has ~50 million shares outstanding, with a recent market capitalization of CA$7.5 million. It’s early days for Healthspace, but with a growing client base on the environmental agency side, and revenues beginning from data sales, the company hopes to become profitable within the next year.
3. Patient Home Monitoring Corp. (TSX.V:PHM)
Patient Home Monitoring has been as high as $2 a share in 2015, but some market communications missteps resulted in a wholesale abdication of faith in its shares. But with a new CEO in place, and record revenue in the last quarter, PHM’s business appears to be thriving. The company reported Q1 2016 revenue of $40.17 million with a gross margin on revenue of 65% or $26.08 million. Despite that, the company reported a loss of $0.002 per outstanding share, which is an improvement over the previous quarter’s loss of $0.016 per share.
Patient Home Monitoring acquires companies that offer home-based chronic care treatment throughout the United States to patients with heart, lung, and sleep conditions as well as diabetes and and targets cross-selling of the various products of acquires to each other’s client databases. The company has been using its shares as currency to pay for the acquisitions in part, which while causing substantial dilution nonetheless preserves cash. Since the company’s shares took a hit to current levels around $0.40 a share, they have switched into using their cash primarily for acquisitions, which is the primary reason for the loss.
The company stated in a recent Midas Letter podcast interview that it expects to exit2016 with a run rate of ~$200 million, which is an increase of $~86 million from 2015’s $112 million exit run rate.
The share price is labouring against negative sentiment against former management, but new CEO Casey Hoyt believes that will change with the company’s ongoing financial performance improvement. PHM has 337,525,310 out as of December 31, 2015s supporting a recent market capitalization of $142 million.
4. Photon Control Inc. (TSX.V:PHO)
Photon Control makes optical sensors used by Original Equipment Manufacturers in computing, energy, healthcare and other device-oriented segments. Their optical sensors capture metrics such as temperature, pressure, flow, location, and luminosity. They have been profitable for six years in a row, and most recently reported Q3 2015 revenue of $6 million, up 16 per cent over the same quarter in 2014. But its nine month revenue for the period ending September 30, 2015 was $21.8 million, up 44.9 percent over the same period in the year prior. And most importantly, earnings per share increased by 75 percent over the same timeframe last year, demonstrating improved profitability as the company progresses.
The company has 102.2 million shares out which give it a market cap of roughly $68 million. Photon reported that it had a ‘solid order backlog’ in 2015 worth $4.8 million.
These companies are all microcap companies, and thus come with a commensurate level of risk. But all have product offerings and sales that demonstrate at least an initial level of market acceptance.
James West and/or associated funds do not own shares in any securities mentioned in this article. For the full Midas Letter disclosure policy, click here. Postmedia and Midas Letter have a revenue sharing arrangement.