Tucows, Inc. – Value Analysis (NASDAQ:TCX) : June 15, 2017

Capitalcube gives Tucows, Inc. a score of 84.

Our analysis is based on comparing Tucows, Inc. with the following peers – Web.com Group, Inc., Leaf Group Ltd., Bridgeline Digital, Inc., Innodata Inc., Yahoo! Inc., Wix.com Ltd., Synacor, Inc. and VeriSign, Inc. (WEB-US, LFGR-US, BLIN-US, INOD-US, YHOO-US, WIX-US, SYNC-US and VRSN-US).

Investment Outlook

Tucows, Inc. has a fundamental score of 84 and has a relative valuation of OVERVALUED.

Fundamental Score

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Company Overview

  • With respect to peers, relative outperformance over the last year is in contrast to the more recent underperformance.
  • It currently trades at a Price/Book ratio of (14.65).
  • TCX-US‘s operating performance is relatively good compared to its peers. The market currently does not expect high earnings growth relative to its peers but seems to expect the company to maintain its relatively high rates of return.
  • TCX-US has relatively high profit margins while operating with median asset turns.
  • The company’s year-on-year change in revenues and earnings are better than the median among its peer group.
  • TCX-US‘s return on assets currently and over the past five years suggest that its relatively high operating returns are sustainable.
  • The company’s median gross margin and relatively high pre-tax margins suggest non-differentiated product portfolio but with tight cost control relative to peers.
  • While TCX-US‘s revenues in recent years have grown faster than the peer median, the market gives the stock a P/E ratio that is around peer median suggesting that the market has some questions about the company’s long-term strategy.
  • The company’s level of capital investment seems appropriate to support the company’s growth.
  • TCX-US has the financial and operating capacity to borrow quickly.

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Leverage & Liquidity

TCX-US has the financial and operating capacity to borrow quickly.

  • With debt at a relatively low 14.77% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 5.62%), and a well-cushioned interest coverage level of 17.99x, TCX-US can probably borrow quickly. We classify the company as Quick & Able in terms of its capacity to raise additional debt.
  • Of the 8 chosen peers for the company, only 7 of the stocks have an outstanding debt balance. Companies with no debt include LFGR-US.

TCX-US has maintained its Quick & Able profile from the recent year-end.

  • TCX-US‘s interest coverage is its lowest relative to the last five years and compares to a high of 130.48x in 2015.
  • The decrease in its interest coverage to 17.99x from 57.79x (in 2016) was also accompanied by a decrease in its peer median during this period to -4.86x from -2.56x.
  • Interest coverage fell 37.49 points relative to peers. It is also above the 2.50x coverage benchmark unlike the peer median.
  • TCX-US‘s debt-EV is its highest relative to the last five years and compares to a low of 0% in 2014.
  • The increase in its debt-EV to 14.77% from 2.79% (in 2016) was also accompanied by an increase in its peer median during this period to 5.62% from 4.14%.
  • Relative to peers, debt-EV rose 10.50 percentage points (and is now higher than its peer median).

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Web.com Group, Inc. 41.13 0.19 2.2 22.24
Leaf Group Ltd. 0 3.49 -9863.75 999
Bridgeline Digital, Inc. 12.24 1.14 -4.86 -50.98
Innodata Inc. 0.78 1.87 -97.26 -668.68
Yahoo! Inc. 3.39 6.87 -1.77 68.94
Wix.com Ltd. 0.04 0.81 -194.83 -2007.55
Synacor, Inc. 5.62 0.93 -41.08 -42.91
VeriSign, Inc. 20.82 1.21 6 29.59
Tucows Inc. 14.77 0.87 17.99 40.68
Peer Median 5.62 1.14 -4.86 22.24
Best In Class 0.04 6.87 17.99 999

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Company Profile

Tucows, Inc. is an Internet services company, which engages in the provision of domain names, email, and other services. It operates through the Domain Services and Network Access Services segments. The Domain Services segment includes wholesale and retail domain name registration services; value added services; and portfolio services. The Network Access Services sells retail mobile phones and services to individuals and small businesses through the Ting website. It also offers services under four brands: OpenSRS, YummyNames, Hover, and Ting. The company was founded in 1993 and is headquartered in Toronto, Canada.


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