Stock markets throughout the world experienced sharp swings in value during the month of May. Central bank tightening to combat rising inflation, lockdowns in China exacerbating supply chain issues, geopolitical tensions and the war in Ukraine all continue to be key drivers with one or another assuming prominence in the eyes of investors. Consumer demand remains strong, employment is tight and Canada’s GDP grew 3.1% in the first quarter. The price of oil was moving up at the end of the month. The TSX composite index was basically flat on the month, having been down 4.8% on May 12^th from its high on May 2^nd. In contrast, the S&P 500 index and the MSCI world index were both down more than 12% on the month. Bond yields were up across the curve and the BOC raised its base rate by 50bps to 2.0% on June 1. With this background, the following table presents the top and bottom performers for the month of May. Interestingly, every one of them shows significant negative performance year to date.

Enthusiastic Gaming Holdings Inc (EGLX)

The best performer was Enthusiastic Gaming, up 25.4%. This result was prompted by the publication of first quarter results on May 16: Revenues at $47.2 were up 47.2%; Gross profit margin was up 44.7%; Operating expenses were up 32.5%; resulting net loss was reduced by one-third to $0.08 per share. EGLX is building the largest media platform for video game and esports fans to connect and engage worldwide. Almost 90% of revenue came from Media and Content (predominantly advertising revenue) with 4% from Esports and 7% from Subscriptions. It engages approximately 300 million gaming enthusiasts worldwide monthly and surpassed one billion monthly views in the US in March. This is a powerful company growing rapidly, but with expenses growing too. An activist fund, Greywood Investments Llc, recently sent a letter outlining a number of grievances, followed up by the submission of an alternative slate of directors for the annual meeting scheduled June 29^th. EGLX has dismissed the allegations.

Tecsys Inc (TCS)

The second best performer was TCS which was up 25.25% on the month. Part of this was the result of improved sentiment for technology stocks following a steep decline. TCS is engaged in the development, marketing and sale of enterprise-wide supply chain solutions to multiple complex distribution industries. It also supplies warehouse, distribution and transportation management as well as supply management at point of use. Results for the three months ended January 31, 2022 were solid with revenues up 11%, adjusted EBITDA down 31% and EPS down 50% at $0.06 per share. With 65% of revenue from the US, unfavourable foreign exchange of $1.7 million chiefly accounted for the losses. Total annual recurring revenue at $59.5 million was up 17%. The SaaS revenue segment generated revenue from proprietary software through subscriptions at $7 million which comprised 19.8% of total revenue., and up 49% on the prior period. This segment is expected to provide the backbone of future growth. TCS has an established position in health care and the Hospital vertical which provides an enormous runway.

Real Matters Inc (REAL)

The third best performer was Real Matters, up 24.56%. The company provides residential real estate appraisal and title services to mortgage lenders in the United States and Canada as well as insurance inspection services in Canada. The stock price fell to a low on April 29^th as rising interest rates negatively impacted mortgage originations and REAL results. For the quarter ended March 31, 2022, Revenues at $95 million were down $33.8 million or 26% compared to the same period one year ago. This decline was due to lower revenues generated by the US Appraisal and US Title segments, as a result of lower addressable market volume; this was offset, in part, by revenue growth in the Canadian segment due to market share gains. Overall, a quarterly loss of $0.01 per share was realized compared to a profit of $0.03 per share in the prior period; 300,000 shares were purchased under its NCIB. On April 28^th the CEO stated that the near-term focus will be on managing the business through rising mortgage rates and using cash to purchase shares.  

Aritzia Inc (ATZ)

The third worst performer was Aritzia which was down 18.64%. ATZ is a vertically integrated design house, home to an extensive portfolio of exclusive brands for every function and individual aesthetic operating from an innovative global platform offering Everyday Luxury online and in its 100+ boutiques. The momentum of the Aritzia brand continued through the fourth quarter of fiscal 2022, ending February 27^th, with net revenue growth of 66.1% from last year and up 74% on the full year. Net income for the quarter was $34.2 million ($0.29 per share), up 113% and adjusted EBITDA was up 88.3%. Also announced on May 5^th was the transition of Jennifer Wong to CEO with the founder Brian Hill becoming executive Chairman. The drop in the share price is difficult to explain based on results, especially with the numbers coming in much better than expected. However, we believe the poor performance is more related to weak market sentiment for high-growth stocks.

Magellan Aerospace Corp (MAL)

The second worst performer was Magellan Aerospace Corp (MAL) which was down 23.57%. It is a diversified supplier of components to the aerospace industry. Results for the first quarter were announced May 6^th: Revenues at $187.7 million were up $11.4 million or 6.5%; but gross profit at $10.9 million was down $6.2 million and a net loss of $2.8 million resulted compared to a profit of $3.3 million in the prior period. The ongoing COVID-19 pandemic continued to result in low production levels largely related to wide-body aircraft, and supply chain and labour constraints negatively impacted the company’s operations in the first quarter of 2022. The quarterly dividend level has been reduced by 2.5 cents to $0.08.

Xebec Adsorption Inc (XBC)

The worst performer in the month was Xebec Adsorption Inc (XBC) which was down 59.19%. Reader may recall its stock being a top performer in March. The company provides a suite of product and service offerings for hydrogen and renewable natural gas generation, purification, dehydration, separation and filtration. It has three targeted markets: biogas conversion to renewable gas (RNG) from agricultural digestors and the like; production of hydrogen; capture of carbon from natural gas streams (CCUS). This outcome was triggered by disappointing results for the first quarter announced on May 11^th. Revenues at $41.2 million were up $20.6 million, mainly due to acquisitions, but COGS was up $20.2 million and SG&A was up $5.5 million leading to a net loss of $18.4 million. Loss provisions for legacy RNG contracts and increasing material and supply chain costs contributed to the outcome. $16.6 million of cash was utilized in the month leaving $24 million on hand. The transition to a low carbon future plays to XBC’s strength and supports a better future for XBC.

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Disclosure: The analyst(s) responsible for this report do not have a financial or other interest in the securities mentioned.