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Are Tucows (USA Stocks:TCX) weak fundamental indicators contributing to the current slide?

March 12, 2024  By Gabriel Shpitalnik
Macroaxis Story
Every cloud has a silver lining, but it seems Tucows Inc. (TCX) is still searching for its silver streak amidst a storm of weak fundamentals. The company, a key player in the Software - Infrastructure industry, has been experiencing a downtrend in its stock, which may be attributed to its underlying financial health. Tucows' net income from continuing operations reported a loss of $86.3 million, while its net income stood at a loss of $96.2 million. This negative profitability is a red flag for investors, as it indicates the company's inability to generate profits from its operations. The company's current valuation stands at $561.77 million, significantly lower than its net assets of $664.75 million. This discrepancy suggests that the market may be undervaluing the company, possibly due to its weak financial performance. Moreover, Tucows' return on assets (ROA) is at -0.05, indicating that the company is not effectively using its assets to generate earnings. This, coupled with a negative net working capital of $18.3 million, further underscores the company's financial struggles. However, it's not all doom and gloom. Tucows' price to sales ratio stands at 0.61X, which is relatively low, suggesting that the company's stock could be undervalued. But whether this is enough to offset the company's weak fundamentals and drive a reversal in the stock's downtrend remains to be seen. Tucows Inc.'s EBIT to Revenue ratio remains relatively stable compared to last year. The Cash Ratio is projected to increase to 0.14 in 2024, while the Price Earnings Ratio is expected to rise to (11.33). If you're seeking to expand your portfolio, it's crucial to analyze all key fundamental indicators of your chosen stocks before investing. In this piece, we delve into Tucows. We'll explore why this could be a prosperous year for Tucows shareholders, as the company is highly responsive to market trends. Hence, Tucows could be a viable investment option for your portfolio.
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Reviewed by Ellen Johnson

Tucows Inc.'s (TCX) fundamentals paint a concerning picture that could be contributing to the stock's current downtrend. The company's high Selling, General & Administrative expenses, which stand at a significant 98.1M, coupled with a low Current Ratio of 0.36X, suggest a potential liquidity issue. Additionally, the company's Debt to Equity ratio of 2.14% indicates a reliance on debt for operations, which could pose a risk in the long term. These factors, combined with a high Forward PE of 29.15, may be causing investors to question the company's valuation and future profitability, leading to the observed downtrend in the stock price.

Main Ideas

Our analytical tool cross-verifies the current analyst consensus on Tucows Inc, assessing the company's growth potential in the current economic cycle. The company's dividend policy can provide insight into the stock's current value. However, Tucows is not expected to issue dividends this year, as it aims to preserve or reinvest any distributable funds. Investing in non-dividend stocks can still yield capital appreciation. Investors in such stocks depend on the stock's price increase over time for returns. If the company performs well and its stock price rises, investors can sell their shares at a higher price for a profit.
Typically, a company's financial statements are the reports that show the financial position of the company. There are three main documents that fall into the category of financial statements. These documents include Tucows income statement, its balance sheet, and the statement of cash flows. Potential Tucows investors and stakeholders use financial statements to determine how well the company is positioned to perform in the future. Although Tucows investors may use each financial statement separately, they are all related. The changes in Tucows's assets and liabilities, for example, are also reflected in the revenues and expenses that we see on Tucows's income statement, which results in the company's gains or losses. Cash flows can provide more information regarding cash listed on a balance sheet, but not equivalent to net income shown on the income statement. Please read more on our technical analysis and fundamental analysis pages.
The goal of Tucows fundamental analysis is to do accurate financial forecasts. There are several possible objectives to fundamental analysis, such as projecting of Tucows performance into the future periods or doing a reasonable stock valuation. The intrinsic value of Tucows shares is the value that is considered the true value of the share. If the intrinsic value of Tucows is higher than its market price, buying is generally recommended. If it is equal to the market price, it is recommended to hold; and if it is less than the market price, then one should sell all shares Tucows. Please read more on our fundamental analysis page.

How effective is Tucows in utilizing its assets?

Tucows Inc reports assets on its Balance Sheet. It represents the amount of Tucows resources that either has an existing economic value or will provide some form of benefits in the future. By effectively utilizing its assets, Tucows aims to generate revenue, control costs, drive operational efficiency, and enhance profitability. Optimizing asset utilization helps maximize shareholder value and maintain a competitive position in the Internet Services & Infrastructure space. To get a better handle on how balance sheet or income statements item affect Tucows volatility, please check the breakdown of all its fundamentals.

How important is Tucows's Liquidity

Tucows financial leverage refers to using borrowed capital as a funding source to finance Tucows Inc ongoing operations. It is usually used to expand the firm's asset base and generate returns on borrowed capital. Tucows financial leverage is typically calculated by taking the company's all interest-bearing debt and dividing it by total capital. So the higher the debt-to-capital ratio (i.e., financial leverage), the riskier the company. Financial leverage can amplify the potential profits to Tucows' owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of Tucows' financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets). Please check the breakdown between Tucows's total debt and its cash.

Tucows Gross Profit

Tucows Gross Profit growth is one of the most critical measures in evaluating the company. The Gross Profit growth rate is calculated simply by comparing Tucows previous period's values with its current period's values. Each time period you're measuring should be of equal lengths the increase or decrease, in a company's Gross Profit between two periods. Here we show Tucows Gross Profit growth over the last 10 years. Please check Tucows' gross profit and other fundamental indicators for more details.

Is Tucows valued reasonably by the market?

Many companies such as Tucows have both institutions investors and insiders sharing the ownership. Retail investors typically buy and sell stocks in round lots of 100 shares or more. Other other hand institutional investors are known to buy and sell in block trades of 10,000 shares or more. Let's take a look at how the ownership of Tucows is distributed among investors.

Ownership Allocation

The market capitalization of Tucows is $206.59 Million. The majority of Tucows Inc outstanding shares are owned by institutional holders. These institutional investors are usually referred to as non-private investors looking to take positions in Tucows to benefit from reduced commissions. Consequently, institutions are subject to a different set of regulations than regular investors in Tucows Inc. Please pay attention to any change in the institutional holdings of Tucows Inc as this could imply that something significant has changed or is about to change at the company. Note, that even with negative profits, if the true value of the company is larger than the current market value, you may still be able to generate positive returns on investment in this company.
Retail Investors
11.38%		Insiders
8.78%		Institutions
79.84%
Retail Investors11.38
Insiders8.78
Institutions79.84
Please be aware that individual investors typically purchase shares for their personal accounts and usually in smaller quantities compared to institutional investors. While they might influence Tucows' decisions if they own a significant combined portion of its shares, such influence is relatively rare. Conversely, institutional investors - like mutual funds, pension funds, hedge funds, and other investment companies - often have a substantial sway over Tucows' decisions due to their larger holdings.
 2021 2022 2023 2024 (projected)
Other Current Liab19.4M27.7M31.9M33.4M
Total Assets539.6M664.7M764.5M802.7M
Other Current LiabTotal Assets

Asset Utilization

The asset utilization indicator refers to the revenue earned for every dollar of assets a company currently reports. Tucows has an asset utilization ratio of 51.05 percent. This suggests that the Company is making $0.51 for each dollar of assets. An increasing asset utilization means that Tucows Inc is more efficient with each dollar of assets it utilizes for everyday operations.
Non Current Assets Total
597.5 M
Non Current Assets Total597.5 Million51.89
Non Currrent Assets Other9.03 Million0.78
Other Current Assets139.56 Million12.12
Total Current Assets205.18 Million17.82
Intangible Assets24.24 Million2.11
Other Assets15.87 Million1.38
Net Tangible Assets158.58 Million13.77
Deferred Long Term Asset Charges1.56 Million0.14
Every cloud has a silver lining, but Tucows Inc.'s (TCX) current downtrend in the stock market might be more related to its weak fundamentals than a temporary storm. The company's current ratio of 0.36X indicates a potential liquidity issue, as it suggests that Tucows may have difficulty meeting its short-term obligations. Moreover, the company has a net debt of $232.5M, which could be a concern for investors. The negative net interest income of $35M, portrayed as a loss, further paints a picture of financial instability. Despite a PEG ratio of 1.15 suggesting fair value, the underlying fundamentals may be driving the stock's current downtrend.

Our Tucows analysis suggests possible reversion in April

Tucows Inc. (NASDAQ: TCX) is currently displaying a skewness indicator of -0.46, a significant decline potentially hinting at a price surge soon. Skewness, a statistical measure of distribution symmetry, suggests Tucows' stock price distribution is negatively skewed, possibly indicating undervaluation. It may revert to its mean price in April. However, investors should also consider other market factors before making decisions. Tucows Inc shows low volatility with skewness of -0.46 and kurtosis of 0.43. We recommend investors to further explore Tucows Inc's technical indicators to ensure comprehensive and reliable market information. Understanding varying market volatility trends can aid investors in market timing.
Proper use of volatility indicators allows traders to gauge Tucows' stock risk against market volatility during both bullish and bearish trends. The heightened volatility of bear markets can directly affect Tucows' stock price, causing investor stress as share values decline, often leading to portfolio rebalancing with different stocks. Despite the slight 1 percent dip in Tucows Inc's stock, the company still holds a substantial market value of 18.6. However, investors should tread carefully as the analyst overall consensus leans towards a 'Strong Sell'. The valuation real value stands at 51.01, which is significantly higher than the naive expected forecast value of 19.67. This discrepancy could indicate potential overvaluation. While the analyst highest estimated target price is an optimistic 166.51, the possible downside price is 16.06, suggesting a risk of loss. Therefore, investors should consider these factors carefully before making a decision. .

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Editorial Staff

Gabriel Shpitalnik is a Member of Macroaxis Editorial Board. Gabriel is a young entrepreneur and writes predominantly on the business, technology, and finance sector. He likes to analyze different equity instruments across a wide range of industries focusing primarily on consumer products and evolving technologies. View Profile
This story should be regarded as informational only and should not be considered a solicitation to sell or buy any financial products. Macroaxis does not express any opinion as to the present or future value of any investments referred to in this post. This post may not be reproduced without the consent of Macroaxis LLC. Macroaxis LLC and Gabriel Shpitalnik do not own shares of Tucows Inc. Please refer to our Terms of Use for any information regarding our disclosure principles.

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