Armada Data – Update At Q2 2021

TM editors' note: This article discusses a penny stock and/or microcap. Such stocks are easily manipulated; do your own careful due diligence.

On January 28th, 2021, Armada (ARD.V) released their Q2 financials. While earnings and cash flow were positive, the numbers definitely weren’t as strong as Q1. That being said, while Q2 results didn’t replicate Q1, Armada is still a micro-cap with potential. We still hold a fairly large position in Armada, and with that in mind, we walk through their Q2 number using our usual bullish, neutral, and bearish format.

The chart is still showing strength. On an overall basis, Armada shares continue to exhibit strength. Volume in and around the Q2 release was particularly strong, with Armada trading approximately 785,000 shares from January 28th to the end of February 1st, 2021. To put this into context, for the entire 2020 fiscal year (June 01 2019 – May 31 2020), Armada traded approximately 2.5 MM shares. In essence, about 30% of the total volume of fiscal 2020 changed hands in the three days around the Q2 release. While most of the market is still relatively unaware of Armada, someone was interested, and voted with their wallet(s) leading up to the Q2 release.

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The balance sheet remains solid. The beauty of small companies is that the financial statements usually aren’t trying to throw any curveballs, which is true for Armada. The balance sheet has hardly changed when comparing Q2 vs Q1. Cash is up on a quarterly basis, and current assets are down by an immaterial amount. When adjusted for intangibles, total assets are up by ~ $140K when compared to Q1, and on the liability side, total liabilities are up on a quarterly basis by ~ $126K, all of which is a function of changes in lease liabilities. Other than that, the balance sheet has hardly moved, and on a YoY basis, there are no concerns. The company still has a very strong current ratio, and total liabilities are small when one considers they could almost be fully paid out by cash on hand.

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Revenues and earnings are flat. While we were hoping for a repeat of Q1, it was not to be. Revenues and earnings were down on a quarterly basis, but both EBITDA and net earnings are improved when viewed on a YoY basis. It should be noted that these numbers are still reflective of a Canadian economy that is still in the midst of dealing with COVID induced lockdowns, so one might argue that these numbers are surprisingly strong. In any case, while the income statement doesn’t present any red flags, it is arguably neutral at this point. Given the very strong Q1 showing, Armada still has the remainder of the year left, and if even one of those quarters comes close to a repeat of Q1, it will significantly impact the full year results of Armada.

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Cash flow is still solid, although not as strong as Q1. For whatever reason, it seems that the Armada cash flow statement requires a bit more detective work, as the value labelled as “Cash provided (used in) by operating activities” is actually the total change in cash flows due to working capital changes. The correct (after working capital changes) cash flow is shown below, and for both the 3 month and 6 month period, cash flow is solid at $0.01/share for 3 months and $0.02/share for 6 months. This suggests that full year cash flow could be somewhere between $0.02/share (if the remainder of the year is horrible) and $0.04/share, if Armada can produce similar 6 month results. Either way, this works out to a current cash flow yield of somewhere between 13% and 27%, using the current price of $0.15. Given that the Armada business model isn’t particularly capital intensive, this means the cash balance just keeps growing, which is fine by us.

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Disclosure: We are long on Armada, with an average purchase price of ~ $0.115 CAD, and will continue to purchase at opportunistic prices. 

Disclaimer: I have no relationships with ...

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