PyroGenesis Canada Inc (TSX: PYR) is a company that designs, develops, manufactures, and sells sophisticated plasma processes and systems. Defense, metallurgical, mining, additive manufacturing, oil & gas, and environmental industries benefit from the company's technical and production experience, cutting-edge contract research, and turnkey process equipment packages.

Why should Investors make an EXIT?

• Degraded financial numbers: The company displayed week financial statistics in Q3 2021. However, it increased its topline but did not maintain that momentum in the bottom line. Furthermore, it incurred greater cost of sales, resulting in an operating loss of CAD 1.2 million, compared to a profit of CAD 0.08 million in the prior quarter.

• Lower margin profile v/s Industry: In Q3 2021, the company failed on maintaining its pace and witnessed lower performance under operating margin matrix, consisting of EBITDA margin and operating margin, which exhibits the extreme pressure on the company.

  Source: REFINITIV, Analysis by Kalkine Group

• Long cash cycle days: The company’s Cash Cycle (Days) has increased compared to the previous sequential quarters, implying the company is taking more days to convert its inventory to cash. In Q3 2021, its Cash Cycle stood at 109.8 days against 11.1 days in Q2 2021. Also compared to industry median its very high, which is at 36.4 days only.

• Higher average collection period: PYR is having a higher average Accounts Receivable day of 183.4 days, against the industry median of 51.8 days. A higher average collection period indicates that the organization is collecting its payments at a slower pace. This may create a difficulty for the company to have enough cash on hand to meet their financial obligations. Furthermore, the company’s average A/R days is growing on a continuous basis, implying pressure on the Company.

Source: REFINITIV, Analysis by Kalkine Group

Stock recommendation

The company gained some traction and saw an increase in its top line, but its cost of sales skyrocketed in the reporting period, along with higher R&D expenses resulted in an operating loss of CAD 1.2 million, compared to an operating profit of CAD 0.08 million in the prior period. Furthermore, its operating margin profile is on the lower end of the industry, indicating that it is under pressure. Moreover, it also has a prolonged Cash Cycle (Days), and its average A/R days are also increasing on the sequential basis, which may create a difficulty for the company to have enough cash on hand to meet their financial obligations. Hence, based on the above rationales we recommend a “Sell” rating on the stock at the closing price of CAD 3.11 on January 27, 2022.

One-Year Technical Price Chart (as on January 27, 2022). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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