The 2026 (and 2023) Wolf Pick came out with results after hours Monday. The stock is currently up a respectable 19% from the $0.58 selection, even though a look at the one year chart could make one a wee sea sick.
The company is coming off a weak start to the year from their Q1 financials - a review in which I downgraded the stock to 2.75 stars. While I kind of expected the company to be a bit of a late 2026 bloomer, the 15% decrease in revenue with margins as skinny as a toothpick was not the start to the year I was hoping for.
The stock initially dropped by 16% on those earnings, and I had expected it to trade sideways (at best) until they had some news or released some improved financials. But that isn’t what happened. The stock rose as much as 34% between July 9th and August 12th with no rationale that I could discover.
That led me to say this in my monthly What’s Wolf Watching article a couple of weeks ago
Let’s get into the review.
Balance Sheet:
Normally, I would herald a company with a current ratio of 1.7 like we have here, but a current ratio isn’t necessarily the best measurement of one’s liquidity.
Like their first quarter, the company is into their line of credit leaving them cashless to end Q2. They have $9M in accounts receivable, $11.2M worth of inventory and $1M in other current assets over top of $12.4M in liability commitments (customer deposits removed) due over the next twelve months.
They are $670k deep on their available $7.5M operating LOC which has an accordion feature up to $12.5M.
In addition, Atlas has $16.3M of debt across three mortgages and loans with TD, all at 6.37%. The term loan matures seven years from now with the mortgages all the way out to 2047 and 2048.
Aging of receivables has improved from 51% to 71% current from the start of the year, and the company is not anticipating taking anything significant in the way of write offs.
Inventory levels are up by 47% or $3.6M from the start of the year, significantly more than their rate of revenue gains.
Cash Flow:
AEP has generated $2.8M of operational cash flow (OCF) compared to just $861k a year ago.
Like the balance sheet, sometimes the overall numbers and ratio’s don’t tell the entire story. While OCF improved by a factor of 220% over last year, it’s heavily assisted from increased customer deposits and accounts payables growing by $4.4M - a good portion of which are likely due to their suppliers from their inventory investments.
Atlas has invested over $7.3M so far YTD into buildings and equipment to support their new Robotics facility and they have received $3.6M out of a total of $4M from grants from the federal government.
They have reduced their overall debt burden by $871k since the start of the year and the treasury has received $87k from insiders exercising stock options.
Again, they ended the quarter with $0 cash in the bank and are currently living off of their LOC.
Share Capital:
71.6M shares outstanding with 2% dilution YTD, mainly due to the Penn-Truss acquisition a year ago with performance conditions kicking in during Q2
5M options outstanding, about 1.1M currently ITM between 60 - 67 cents. 600k of which expiring within one year
15% insider ownership with BMO asset management as the largest institutional and overall shareholder at 10.1%
No insider activity on the open market since last fall - many of which at prices higher than today
Income Statement:
After a Q1 where not much positive could be said about their P&L, they get back into the winners column on the revenue line with $16.2M, a 19% improvement over the comparable quarter. Margins came in 50 basis points higher than a year ago as well, increasing to 17.5% and that drove an additional 22% gross profit dollars.
One thing you can almost count on every quarter is for Atlas to be run efficiently, and that is the case again here. Total cash burning operating expenses decreased by 8.5%, mainly due to less professional fees from last year’s acquisitions.
Their net loss improved to $307k vs $708k last year, and that also includes a $270k bogey in income taxes.
On a YTD basis they are back on the positive side of revenue, increasing by 3.4%. The same can’t be said about gross margin, now down 440 basis points to last year at 12.1%. That is responsible for a 24% decrease in gross profit dollars.
Expenses once again have been very well controlled to last year but it wasn’t enough to avoid the widening of net losses to $2.04M vs $1.55M halfway through the year.
Summary:
Better than their first quarter to be sure, but I’m not about to don my tap dancing shoes just yet.
A big part of the bull case for my 2026 revolved around macro conditions changing in Canada in relation to home building. That quite hasn’t happened yet with the latest CMHC data, but the raw starts were up QoQ which I hope to be a sign of things to come. There’s that hope word again.
More encouraging was last weeks news that the Federal and provincial news on their $1B in infrastructure investments to build new homes. Combined with other governmental initiatives (HST relief), this could potentially save homebuyers up to $200k on a new home. This specific initiative will also only be eligible to communities that do not levy development charges. That in turn should make municipalities rethink their levy costs and therefore spur additional growth for making it more attractive for builders to invest.
Alberta and the Feds announced a similar initiative last month.
After some shipping delays on their new automation equipment for their facility in Ontario, they anticipate shipping their first orders of roof trusses in September. In their news release accompanying their financials they cite increasing quoting activity and order volume increasing, although with additional lead time on orders. I’m not a huge fan of seeing quotes over backlog without knowing what their salespeople’s close rate is, but it is better than no metrics at all.
After what I will call a mediocre first half for Atlas, the bad news is the back half is much tougher than the first. They achieved 3% growth against $24.7M in the first half of the year, but now face a $38M back half just to match off what they did last year.
That’s a lot of junk in the trunk.
While I share the same cautious optimism as management does, this late bloomer may take even a little longer than expected.
Better than Q1 but not quite enough yet to warrant an upgrade. I was tempted though.
2.75 stars again.
Disclaimer:
My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements. I do not accept compensation of any kind from company’s I review.
Wolf FINS Reviews are intended to be informational and are based on personal opinion. They are not intended to be financial advice, and all readers are encouraged to perform their own due diligence prior to their investment decisions, including discussions with their investment advisor.