This month’s stock screener aims to identify companies that will continue to benefit from the “Work-from-home” or “work-from-anywhere” trend as work environments increasingly become more flexible. Here are some of the obvious winners:

• Zoom (ZM): Voice-over-IP communication
• DocuSign (DOCU): Digital contracts
• Crowdstrike (CRWD): Cybersecurity
• Twilio (TWLO): Cloud communications

All of the above have shown returns of over 100% year-to-date (Zoom is at 270% YTD as we write this). As their share prices continue to climb becomes more difficult to justify these higher valuations. To identify potential “undiscovered’ opportunities in this space we screened for companies that have appreciated less than 40% year-to-date and showed at least some year-over-year revenue growth (greater than 0%). We have also included a P/E column to compare valuations:

About the Screen

We were not very strict on the fundamentals criteria as there are not many WFH specific stocks to begin with. Our screening approach was also a bit different this time around as there is no “Work-From-Home” filter one can use. To work around this, used the newly released work-from-home ETF (also called “WFH”) to filter for US companies. To find Canadian companies we filtered for the same industries found in the WFH ETF and checked to make sure their products and services were related to the remote working trend.

Though we would not expect the same returns in the short-term seen by the more obvious names, the pandemic induced shift to remote working has shined light on a new way of managing/hiring employees for employers around the globe, which, in turn could open up the doors to other needs in this niche.

You may recognize many of the US names, some of which are obvious large tech conglomerates - Google (GOOGL), Facebook (FB), Microsoft (MSFT), Broadcom (AVGO) and Oracle (ORCL - who seem to benefit from almost any innovation in technology. Other up-and-coming US names on this list are Fortinet (FTNT), Infosys (INFY), Workday (WDAY), Box (BOX), and Slack (WORK).

However, at 5i Research we like to highlight small to mid-cap Canadian companies. Here are three notable ones, which benefit from the WFH trend in a less direct way, but also happen to have the highest one-year revenue growth estimates on this list:

Vecima Networks Inc. (VCM) 

VCM provides technology to support network providers, broadcasters and content creators. From a WFH perspective, the company is likely to benefit from its cloud storage business catered to content creators. The coronavirus has forced many content creators to move the storage of video content to the cloud. An example of this would be the increased journalism that is done from home and outside news media corporate office. The protection of this media content is crucial which is another area that VCM focuses on. VCM also has a telematics business which helps customers track vehicle fleets and this will likely become more relevant if companies begin to consider creating more jobs out of office to cut down on real estate costs. The company has a solid balance sheet with a net cash position of $30 million and pays a 2% dividend yield, which is decent for a technology stock. The downside to this name is that revenue growth has been slow and the company has not been profitable since 2018. However, VCM is expected to grow its profits over the next few years due to increased demand for its services. Finally, the company has a $240 million market cap so its smaller size is a risk investor should consider.

Blackline Safety Corp. (BLN)

Blackline manufactures and markets worker safety monitoring products and services - such as gas detection and evacuation devices - and may benefit from companies assigning more employees to work alone, particularly the industrial sector where employees spend a lot of time on construction, manufacturing, energy and mining sites. While we would not consider this a WFH stock per se, an increase in health and safety precautions at the workplace may result in more employees working in isolation. Another point worth noting is that the first place that sees an economic recovery is often the industrial sector before others as businesses prepare inventory ahead of consumer demand. BLN is also a company with a good balance sheet and little debt with a $20 million net cash position. The company has a stable business and is growing revenues and margins, however, BLN is not yet profitable, cash flows are still negative and the company is relatively small in size at a $292 million market cap. BLN trades at roughly 5.3x forward sales which is on the expensive side for a company that primarily sells devices and hardware.

Enthusiast Gaming Holdings Inc (EGLX)

EGLX is a gaming events, media and advertising company and is set to benefit from the accelerated growth of the gaming industry as well as more individuals (including employees) spending time at home. Less commuting to work means gamers will not only have more time to play, but a much easier transition from ‘work to play’, simply due to already being in the same location. One of the unique potential tailwinds of the gaming industry is that many of its participants are in an age group that is part of the workforce, compared to a decade ago when most participants were too young to buy their own games. EGLX stands to benefit from the advertising dollars realized from this new phenomenon. EGLX has good prospects and management is likely motivated with 18% insider ownership among top executives. However, the company is still quite small ($83 million market cap) with lots to prove and has recently taken on significantly more debt. While EGLX has not shown the growth many investors were expecting from a gaming company (reflected in its YTD performance of -21%), it is a stock worth watching as a unique advertisement play in a booming industry.

Bonus name: Sangoma Technologies Corp. (STC)

STC is probably one of the Canadian names with the most direct exposure to the work from home trend. STC has been getting investor attention due to its voice and data connectivity components for software-based communication applications. The stock has recovered well from the March sell-off but is still down 8% on a year to date basis. In addition to providing components to communication service providers, the company also provides communication software to small to medium-sized businesses which will likely need these services to continue operating their businesses remotely. The company has a good track record with revenues averaging over 100% growth in 2018 and 2019 and has more recently shown strong earnings and margins growth. The company is also profitable and cash flow positive.

While we are not endorsing any particular company on this list, we think this is a good place to start for investors looking for exposure to companies that participate in the shift to more remote work business models. Some of these companies may not be directly related to teleconferencing or work collaboration, but this goes to show that the “work-from-home” may have implications on other industries even outside of corporate communications.

Until next time, take care,

Disclosure: Employees of 5i Research involved in the research process cannot trade in Canadian traded stocks and do not hold a financial interest in Canadian companies mentioned. Employees, directors, officers and/or partners hold financial interests in MSFT, DOCU, WDAY, GOOGL, ADBE, FB, WORK