Small Cap Growth Stocks Reviews Telepanel Systems Inc.
Published 2/1/00
Industrials
Telepanel Systems Inc. (TSE/TLS, $2.50; phone: (905) 477-7877; www.telepanelsystems.com) owns an interesting technology that caters to the retail sector, especially supermarkets. Its business involves the development, manufacturing, and marketing of wireless ESL systems that enable retailers to change by remote command the price and other key product information of electronic LCD module displays, which are mounted near the product. The product also allows for effective inventory and merchandising management.
Currently, at the majority of retail chains, product information is generally displayed through the use of printed labels. Prices and other information must be individually changed, which is labour-intensive, expensive, and time-consuming. With TLS?s electronic display, prices and information are changed by remote command, thereby reducing the labour required. The process is quite simple: a central computer and a unique radio frequency communications technology easily updates product information on both the electronic display and in the electronic checkout scanning system.
Based on the current penetration of this technology, there is ample room to grow. According to TLS, there are now in excess of 2.1 million modules, which are installed in 150 grocery stores worldwide. The products are marketed throughout North America through the use of both in-house sales and unique remarketing channels, including IBM. Under these co-marketing arrangements, some chains will become resellers of TLS?s electronic shelf labels.
Fundamentally, TLS continues to struggle on the revenue side but this has been offset by more stringent cost controls. For the nine months ended October 31, 1999, TLS announced a 60% drop in revenues to $2,204,634, down from $5,494,794 for the comparative period. The focus on Y2K was blamed for the revenue decline and, with this now nearly behind us, TLS is becoming more optimistic. While the revenue numbers are down significantly, TLS?s products appear to be gaining more attention in the marketplace, not only in North America but also in Europe. On the positive side, during the revenue shortfall the company reduced its expenses, which helped to decrease the operating loss to $2,995,278, or $0.16 per share, versus $3,158,341, or $0.18 per share.
Based on the chart pattern, the stock price is now at a critical resistance level at around $2.75, which was last reached in September. The stock has been in an accumulation/distribution channel since September, bordered by $1.63 as support and $2.75 as resistance. The recent price spike was bullish as it managed to break through the upper Bollinger band at around $2.50. Prices are trading well above their moving average, which in itself is bullish. Both the MACD and momentum are bullish. Over the next several sessions, we will see if prices can break into a higher trading range.
The stock has steadily moved up and is now up 233% since our initial coverage in the June 1999 issue. We believe a large part of the buying has been more a function of the strong market than the company?s operating performance at this time. Having said this, the coming year will hold high expectations for TLS as Y2K passes. We will see if the company can now deliver. Use only risk capital for this purchase.
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