5i Stock Screener: Canadian Companies That Have Strong Pricing Power

Michael Huynh Feb 21, 2023
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Inflation has been a hot topic in the investment community in the last two years. Every investor wants to protect their portfolio from losing purchasing power by diversifying into different asset classes such as real estate, foreign currencies, gold, real estate, crypto, etc. We think one of the best hedges against inflation is through the ownership of great businesses with significant pricing power that could raise prices to offset costs pressure without losing volumes. Below we have screened for companies with the following criteria:

  • Gross margin of 50% or higher
  • Market cap larger than $100 million
  • Net debt to EBITDA ratio below 3.0x

The criteria above reflect companies that have a gross profit margin of more than 50% - we think that these are good signals for companies with good pricing power. We believe that companies with strong pricing power have the ability to do well in an inflationary environment for these particular reasons: 1) The ability to raise prices to offset inflation without losing volumes helps companies maintain their profit margins 2) Pricing power allows companies to price their with flexibility, sometimes even faster than average inflation rates of 3-4%, leading to operating profit margin expansion 3) A high gross margin can be a powerful lever for organic growth over the long term, especially for companies with mature volume growth.

Here is the screener:

Identifier Company Name Country of Exchange Company Market Cap
(Millions, CAD)
Gross Margin, Percent
Net Debt To EBITDA (Daily Time Series Ratio) ICB Sector name
RETa.V Reitmans Canada Ltd Canada 202.49 51.7% 0.12 Retailers
WTE.TO Westshore Terminals Investment Corp Canada 1,587.48 52.2% 0.73 Industrial Transportation
AGFb.TO AGF Management Ltd Canada 597.26 54.2% 0.29 Investment Banking and Brokerage Services
BITF.TO Bitfarms Ltd Canada 313.21 55.4% 0.89 Software & Computer Services
AND.TO Andlauer Healthcare Group Inc Canada 915.71 55.7% 0.71 Health Care Providers
RBA.TO Ritchie Bros Auctioneers Inc Canada 9,344.23 56.4% 0.54 Consumer Services
ET.TO Evertz Technologies Ltd Canada 1,005.95 57.7% 0.28 Technology Hardware & Equipment
ROOT.TO Roots Corp Canada 127.50 58.9% 2.56 Retailers
GOOS.TO Canada Goose Holdings Inc Canada 2,889.76 62.4% 2.13 Personal Goods
CJRb.TO Corus Entertainment Inc Canada 424.96 63.8% 1.23 Media
DR.TO Medical Facilities Corp Canada 214.58 67.7% 1.63 Health Care Providers
OTEX.TO Open Text Corp Canada 12,876.75 69.4% 2.07 Software & Computer Services
SYZ.TO Sylogist Ltd Canada 148.79 72.2% 0.57 Software & Computer Services
ISV.TO Information Services Corp Canada 378.69 73.4% 0.78 Industrial Support Services
RNW.TO TransAlta Renewables Inc Canada 3,199.97 74.6% 2.68 Electricity
CNR.TO Canadian National Railway Co Canada 106,862.80 75.2% 1.76 Industrial Transportation
WSP.TO WSP Global Inc Canada 21,464.55 77.0% 2.78 Construction and Materials
KBL.TO K-Bro Linen Inc Canada 322.36 77.7% 2.44 Industrial Support Services
TIXT.TO Telus International Cda Inc Canada 2,206.40 82.5% 1.49 Software & Computer Services
PLC.TO Park Lawn Corp Canada 954.07 83.7% 2.85 Consumer Services
TOI.V Topicus.com Inc Canada 6,244.99 89.8% 0.77 Software & Computer Services
TWC.TO TWC Enterprises Ltd Canada 439.06 90.8% 0.31 Travel and Leisure
TRI.TO Thomson Reuters Corp Canada 75,900.11 94.7% 1.59 Finance and Credit Services
X.TO TMX Group Ltd Canada 7,387.34 94.8% 0.95 Investment Banking and Brokerage Services
BRE.TO Bridgemarq Real Estate Services Inc Canada 129.42 97.7% 2.13 Real Estate Investment and Services Development
CSU.TO Constellation Software Inc Canada 50,357.43 98.0% 0.62 Software & Computer Services
GCGa.TO Guardian Capital Group Ltd Canada 1,027.32 99.5% 0.02 Investment Banking and Brokerage Services
AW_u.TO A and W Revenue Royalties Income Fund Canada 582.16 99.9% 0.88 Travel and Leisure


Additionally, having a conservative balance sheet not only lowers the company’s interest expenses amid rising interest rates, but also leaves room for the capability to leverage up and play offence while competitors preserve cash. This is why we have included a net debt to EBITDA ratio of less than 3.0X. We prefer companies that are over $100 million in market cap, as these companies are more mature, and have a reasonable track record for investors to evaluate.

The list above includes some of the familiar names that we cover in our Model Portfolios and coverage lists such as Topicus.com Inc. (TOI), Constellation Software Inc. (CSU), TMX Group Ltd. (X) and A and W Revenue Royalties Income Fund (AW.UN).

It is important to note that we have excluded the Energy and Materials sectors from the screener, as these two sectors experienced abnormal tailwinds in the last two years due to inflation and supply shortages. In our view, companies that have an attractive gross margin over a long period of time do indicate sustainable pricing power and attractive unit economics.

Lastly, these companies on the list are not recommendations, but rather starting point that helps investors generate potential investment ideas. You can view our previous screener blog here.

Take Care,

Michael Signature

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




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