Methodology & ratings

How we cover a microcap

The ratings scale

A rating is a statement about the next 12 months and nothing longer. It is paired with a price target — the value the analysis concludes the shares are worth — and with the share price on the day of publication, so the call can be judged later against what was actually known at the time. Ratings are not adjusted quietly: a change is published as a new report, and the superseded one stays online with a banner pointing at its replacement.

Spec. BuySpeculative Buy

The most likely outcome over the next 12 months is a share price materially above the current one, but the thesis depends on something not yet proven — a contract that has to land, a regulatory decision, or a financing that has to be completed on acceptable terms. Position sizing matters more than usual: a Spec. Buy carries a real probability of permanent capital loss, not merely of underperformance.

Buy

The shares are expected to be worth materially more in 12 months than they are today, and the thesis does not depend on an unproven binary outcome. The business is already doing what the thesis requires; the disagreement with the market is about price, not about whether the model works.

Hold

The shares are judged to be worth roughly what they trade at. Either the business is performing as expected and the price already reflects it, or the range of outcomes is wide enough in both directions that no directional call is warranted. A Hold is a real conclusion, not a way of avoiding one.

Sell

The shares are expected to be worth less in 12 months than they are today. The valuation assumes an outcome the analysis does not support, or the business is deteriorating in a way the price has not yet reflected.

Avoid

No position is warranted at any price the analysis can currently justify — typically because disclosure is insufficient to underwrite the business, the capital structure makes a return to common shareholders unlikely, or solvency is in question. Distinct from Sell: Avoid says the security is not analysable to a standard that would support a directional call, not that a decline has been forecast.

Glossary

The terms that recur across Microcap Research reports, defined as this research uses them. Where a term is a non-standard or management-defined measure, the definition says so.

Price target

The per-share value this research concludes the shares are worth on a 12-month view, derived from the valuation section of the report it appears in. It is an estimate of value, not a forecast of where the price will trade, and not a promise.

Implied upside

The percentage difference between the price target and the share price on the day the report was published. Because the publication price is fixed at publication, implied upside does not move with the market — it describes the call as made, so it can be judged later on its own terms.

Superseded

A report is superseded as soon as a newer report on the same company is published. The older report stays online as the published record of the call, but its rating and price target no longer represent the current view; the banner at the top of the page links to the report that replaced it.

Microcap

A public company with a small market capitalisation — on this site, generally under C$50M. Small enough that sell-side analysts do not cover it, which is the source of both the opportunity and the risk: the filings are complete, but nobody has read them, and the shares can be difficult to buy or sell in size.

Nano-cap

The smallest tier of public company, often under C$25M in market capitalisation. Trading volumes are frequently thin enough that a single order moves the price, so illiquidity is a material risk in its own right.

EBITDA

Earnings before interest, tax, depreciation and amortisation. A proxy for operating cash generation that strips out financing and accounting choices, making two businesses with different capital structures easier to compare. It is not cash flow: it ignores working capital, capital expenditure and the interest that has to be paid.

Adj. EBITDA Adjusted EBITDA

EBITDA after management removes items it considers non-recurring — restructuring costs, share-based compensation, transaction fees. It is a non-IFRS measure with no standard definition, so the adjustments are a management choice. Reports on this site state what has been added back rather than quoting the headline figure unexamined.

ARR Annual recurring revenue

The annualised value of subscription or contracted revenue in force at a point in time. Useful because it describes the run-rate of the business rather than a quarter that may contain one-time revenue — but only meaningful where the revenue is genuinely contracted and recurring.

Gross margin

Revenue less the direct cost of delivering it, as a percentage of revenue. In a small company it is the clearest single indicator of whether the business model works: operating costs can be cut, but a structurally low gross margin caps what the business can ever earn.

EV/EBITDA

Enterprise value divided by EBITDA. Enterprise value is market capitalisation plus debt less cash, so the multiple values the whole business independently of how it is financed — which is why it is used to compare a company against acquisition comparables.

Net cash

Cash and equivalents less total debt. Positive net cash means the company could repay everything it owes and still have money left; in a microcap it is often the difference between negotiating from strength and having to raise capital on whatever terms are available.

Cash burn and runway

Burn is the rate at which a company consumes cash, usually stated per quarter. Runway is how long the current cash balance lasts at that rate. Short runway is the most common way a microcap thesis fails: it forces a financing at a bad price, diluting existing shareholders regardless of how the business is performing.

Dilution

The reduction in an existing shareholder stake when new shares are issued. It is the central risk in nano-cap investing, because a company without cash flow must fund itself by selling shares — and the weaker its position, the worse the price at which it has to sell them.

Warrant

A security giving its holder the right to buy shares at a fixed price until an expiry date, usually issued alongside shares in a financing. Outstanding warrants matter for valuation twice: they represent future dilution if exercised, and future cash if the share price rises above the exercise price.

Covenant

A condition in a loan agreement the borrower must keep meeting — a minimum EBITDA, a maximum debt ratio. Breaching one can make the loan immediately repayable, which is why a covenant on a company with thin margins can matter more to the equity than the interest rate does.

Working capital

Current assets less current liabilities — the cash tied up in running the business day to day. A company can be profitable on paper and still run out of money if growth consumes working capital faster than earnings replace it.

Backlog

Contracted work that has been sold but not yet delivered or recognised as revenue. It gives forward visibility that a small company quarterly results otherwise lack, but it is only as reliable as the contracts behind it and the timing of delivery.

Float

The portion of shares actually available to trade, excluding stock held by insiders and strategic holders. A small float explains why a microcap price can move sharply on ordinary volume, and why building or exiting a position can take far longer than the headline market capitalisation suggests.

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