In the age of environmentalism and renewable energy, clean technology has captured the imagination of investors. Unfortunately, in the case of Canada, the hype hasn’t translated into very many investment opportunities. Investors were badly burned by companies like Timminco Limited and Ballard Power Systems, which failed to live up to expectations.
Separating hype from reality is one of the biggest challenges investors face when picking cleantech stocks. The good news is the TSX has a few promising plays that prove cleantech is more than just a buzzword. In particular, Questor Technology Inc. (TSX: QST) and Xebec Adsorption (TSX: XBC) are a couple of stocks worth checking out.
Questor Technology (TSX: QST)
- Market Cap: $120.1 million
- Annual Revenue Growth: 21.1% (December 2018)
- Stock Growth (2018): 23.7%
- Free Cash Flow: $5 million
Calgary-based Questor Technology has been one of Canada’s best-performing cleantech stocks of the past two years. QST rose 23.7% in 2018 and has tacked on another 36% in 2019 thanks to growing demand for clean combustion solutions.
Questor provides waste gas combustion systems to several industries that employ water vaporization and power generation processes. By reducing fuel consumption, Questor’s combustion process is said to significantly reduce greenhouse gas emissions and lower operating costs. The company enjoys large recurring revenue tied to its incinerator rental business, a category that has grown triple digits in recent years. As a result, Questor has nearly tripled its total revenues since 2015.
Earlier this year, Questor announced it had secured a $5.8 million contract to deliver clean combustion incinerator technology to three oil and gas production facilities in Mexico, setting the stage for global expansion in the not-too-distant future.
Xebec Adsorption (TSX: XBC)
- Market Cap: $80.5 million
- Annual Revenue Growth: 22.2% (2018)
- Stock Growth (2018): 28.1%
- Free Cash Flow: -$800,000
Xebec Adsorption is another smallcap company that has seen enormous growth over a very short period. In less than a year, Xebec’s market cap has more than doubled, its stock price has nearly tripled and its revenue has continually grown. The Quebec-based company designs, engineers, and manufactures gas purification systems that transform raw gas into renewable energy. It has five main product lines that deliver on these solutions, including natural gas dehydration and purification systems and compressed air and gas filtration.
Last year, the company identified four key regions where it is likely to have the most impact. These are Canada, the United States, France, and Italy. Its addressable market in these regions is said to be between $2.5 billion and $3 billion.
Xebec is highly rated among analysts and was recently named a top growth stock to own by Beacon Securities. M Partners has also given XBC a “buy” rating for its “massive” growth potential.
When it comes to share-price performance, revenue growth and business prospects, QST and XBC provide plenty of bang for your buck. As the cleantech era proliferates, these two companies offer a valuable first-mover advantage.
Disclaimer: Author has no investment positions in Questor Technology or Xebec Adsorption at the time of writing.