What are we looking for?
The artificial intelligence (AI) theme has been moving the stock market higher in the United States this year. The new consensus is that AI will improve earnings and drive stock prices higher. These increases will be achieved through reduced staffing levels, increased efficiencies in decision-making, improved security and a more personalized customer experience.
The screen
We used StockCalc’s screener to select 10 AI companies on the TSX. Note that for this screen we had to look for companies that stated AI was part of their strategy, given that there is no AI industry group from which to select. The resulting list was populated with small-cap stocks primarily from the venture exchange. We then used StockCalc’s valuation tools to calculate fundamental (or intrinsic) valuation for each stock to see whether it was undervalued or overvalued compared with its price.
Overview of the techniques used:
- Discounted cash flow (DCF value) is a valuation technique in which cash-flow projections are discounted back to the present to calculate value per share;
- A price comparables (price comps) technique values the company on the basis of ratios from selected comparable companies;
- An adjusted book value (ABV) is calculated by multiplying book value per share by its historical price-to-book ratio.
If we have analyst coverage, we look at the consensus target price.
More about StockCalc
StockCalc is a fundamental valuation platform with tools to calculate and report on value per share for thousands of public companies listed on major North American stock exchanges. StockCalc also contains numerous tools to understand what the stocks you are investing in are worth. Globe Unlimited subscribers can subscribe to StockCalc using the promo code “Globe30,” which offers a 30-day free trial and special pricing for the second month.
What we found
You can see in the accompanying table the percentage difference between each stock’s recent closing price and its intrinsic value. The “StockCalc Valuation” column is a weighted calculation derived from our models and analyst target data. I want to emphasize that these are small-cap companies that can have very high stock-price volatility, so do your own research as well.
The range of returns for these stocks in the past year were from negative 74 per cent to a positive 500 per cent. None of these stocks pay a dividend.
These companies are from a variety of industries, including advertising and asset management, through to health care, internet technology and application software. These companies use AI to:
- incorporate data science and machine learning, business intelligence and predictive analytics to create cost-efficient, subscription-based software-as-a-service solutions;
- deliver health care through the combination of connected primary-care clinics, telemedicine and AI;
- use AI, video analytics and mobile data collectors to interconnect public-transit assets as part of intelligent transportation systems for smart-city initiatives;
- collect, analyze and present structured and unstructured data using machine learning and AI;
- provide location-based digital advertising.
Let’s look at a couple of these companies:
CloudMD Software & Services Inc. (DOC-X) provides patients access to all points of their care from their phone, tablet or desktop computer. The company has SAAS-based health technology solutions for medical clinics across Canada using proprietary technology to deliver health care through a combination of connected primary-care clinics, telemedicine and AI. Our DCF model does not yet see out to profitability, but our other models, as well as analyst consensus, are well above current price.
INEO Tech Corp. (INEO-X) is a provider of location-based digital advertising, analytics and loss-prevention solutions for retailers. INEO’s patented technology, the Welcoming System, integrates and monetizes digital screens with theft-detection sensor gates at the entrances of retail stores. The company’s cloud-based platform uses IoT (internet of things) and AI technology to deliver digital advertising to each retail location based on customer traffic. Our models are split with two (DCF, comps) being below the current price, one (ABV) above and an analyst target well above.
Investing involves risk. StockCalc accepts no liability whatsoever for any loss or damage arising from the use of this analysis.
Brian Donovan, CBV, is the president of StockCalc, a Canadian fintech based in Miramichi, N.B.