Welcome to ‘Stock Teasers’, where we aim to provide investment research on a wide range of topics. In this edition, Cross-Border Stocks, we spotlight one Canadian stock and one US stock, regardless of sector or size. Let’s dive in!

Canadian Stock: VersaBank (VBNK)

VersaBank (VBNK) is a Canadian-based, digital-only bank focused on specialized lending and deposit services. Established as one of the first fully digital banks in Canada, it operates without physical branches, leveraging technology to keep overhead costs low and streamline services for niche markets, including point-of-sale (POS) financing and commercial real estate lending. It mostly operates in Canada, but has recently expanded some services into the US. 

Its stock price has recently seen strong momentum, up 58% year-to-date, and 125% on a one-year basis. It pays a small yield (0.4%), but both sales and earnings growth are expected to be strong in FY2025 and FY2026. Its historical growth rates have been robust, with a five-year sales and earnings CAGR of 16% and 19%, respectively. Net profit margins are expanding and with a market cap of $595.7 million and a reasonable valuation of 11.4X forward earnings, we think VBNK looks interesting here. 

We can see that its net profits have really taken off over the past couple of years, and its outlook is increasingly positive. It has ongoing plans to expand its POS financing offerings in North America, and its cybersecurity segment, DRT cyber, is also expected to see growth in the coming years. 

US Stock: Revolve Group (RVLV)

Revolve Group (RVLV) is a next-generation online fashion retailer with a focus on Millennial and Gen Z consumers, primarily catering to female audiences. It mostly operates through two brands: REVOLVE and FWRD. The company has built a large, engaged audience through collaborations with influencers, and its proprietary algorithms analyze consumer behaviour to help manage its inventory. In the past few years, it has seen sluggish growth as e-commerce growth normalized and consumers returned to physical stores, and its margins also came under pressure due to inflation. However, its brand presence among the younger generations remains strong, and with inflationary pressures easing, its margins are expected to improve, helping its stock price. 

RVLV is up significantly on the year, up 107% year-to-date and 161% on a one-year basis. It is a small-cap stock ($2.4 billion market cap) and while it is not cheap (47X forward earnings multiple), its forward earnings growth is expected to average around 27%. It is profitable, but its profit margins have compressed in recent years as higher logistics and fulfillment costs and inflationary pressures have taken hold. Although, these pressures are beginning to ease, and its core Revolve segment is beginning to see a strong rebound in demand, helping future margin expectations. 

RVLV has a strong history of beating earnings estimates, and we can see its profits have begun to rebound in recent quarters. We feel that with inflationary pressures easing and the potential for lower interest rates, that RVLV can continue to benefit from a strong US economy. 

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