Tucows is a different breed of "cap"

         Usually  the saying goes "something is a different breed of cat";this denotes an unusual person or company.And that applies to Tucows that I have never analysed on any of my blogs.This is the first for Workarthon also.In 2013 Tucows traded at about $12 to $13 a share and now it trades at $36 to $40.It only has a market capitalization of $370 to $400 million.Small even for a "small cap" but a decent size for a growing technology company.After all Tucows has grown 300% in 3 years.So just why has it done so well?
          Operational Numbers
      An examination of comparables reveals why it has done so well.It has earnings per share of $1.38 per share and a P/E ratio of 26.Revenues have grown by only 4 to 5% over the last quarter  but by about 20% over Q4 2015.Operational income shows about the same growth.This compares to Blackberry which has had  a reduction of revenues by 20% since Q4 2015.A quick examination of junior technology companies reveals that Tucows (TC) is one of a few that has positive growth in revenues matched with positive earnings per share.
    It has had large growth in plant and equipment since Q4 2015.While it's market capitalization is below Blackberry (BB) it's EBITDA is much larger at almost $20 million (according to Qtrade) or $25 million (according to Yahoo Finance) compared to negative$200 million EBITDA for BB.Surprisingly Tucows has a float of only 10 million shares;this compares to 523 million for Blackberry and 104 million for Urthecast, another competitor.This is actually a problem for Tucows as it trades very thinly and it's small float prohibits some institutions from acquiring it's stock.It's daily volume of trade is only 2000 shares.A 25,000 share transaction might send the price up by $3 to $5 a share.Otherwise this blog believes that Tucows would be trading closer to $45 a share.          

                    Financing Changes

       Tucows has just recently arranged $75 million in debt financing.It will be used for "share repurchases,acquisitions and capital expenditures".Admittedly Tucows has little debt on it's balance sheet now but it does not need to repurchase shares;it needs to issue more shares.It only has 10 million shares outstanding and this is much less than any of it's competitors.It could easily double the number of outstanding shares that it has to 20 million.This would increase it's liquidity by $720 million and it's trading float both of which would increase it's attractiveness to large institutions.This blog realizes that it would dilute it's earnings per share to$.70 but it would give it the capacity to acquire a number of  small technology companies like Splice Software or even a chunk of Intrinsync Software shares.Both show good growth.

          Conclusion

    Tucows has shown exceptional management in the period from 2013 to today.It has been very careful about issuing new equity and diluting it' earnings.At the same time it's revenue growth has slowed recently.A new equity issue would increase it's liquidity and allow it to pick up a few fast growing technology    companies.Perhaps 10 million new shares is extreme but 1.5 to 2.5 million shares priced at $36 a share would be a quite  acute move.This would reduce earnings by $.25 to $.30 per share.This blog is against any share repurchases when it only has 10 million shares now; a rights issue for 1 to 1.5 million shares would be quite a good idea.                            use Workathon to improve your share price;  use Workathon for business news