Stocks that could potentially graduate to the TSX

There are many factors that go into selecting a stock to be listed on the TSX. In addition, there are different thresholds and criteria for different industries. As an exercise to find companies that have the potential to be listed on the TSX, we screened for stocks listed on the ‘lower’ and less liquid TSX Venture exchange.

It is important to keep in mind that this is not an official list by any means and we cannot guarantee any of these names will be eligible to be listed on the TSX.

The TSX Venture is known to be the ‘TSX junior’ generally consisting of smaller companies, many with large growth potential. Some of these companies become large enough and gain greater institutional ownership and interest and eventually graduate to the TSX. Graduating to the TSX has been a huge milestone for many companies as this can expose the company to a larger pool of investors and in turn more access to capital to grow their businesses further. Many names covered by 5i Research and held in the model portfolios such as Shopify (SHOP) and Sylogist (SYZ) have also graduated the Venture to the TSX.

There are differences in net tangible asset and pre-tax profit criteria for different industries, how to keep the screen simplified, we stuck to a few common denominator criteria and focused on conditions related to companies in the “profitable” category:

• Pre-tax profit of at least $200,000
• Pre-tax Net tangible assets of $2,000,000
• One year of operating history
• Value of trading public float $4,000,000

We generally like to screen for companies that are above a market cap of $100 million, however, given we are dealing with companies on the TSX Venture that are normally smaller, we were a bit flexible on this criterion and brought it down to $50 million. Using the criteria mentioned, we generated a list of 14 names that qualified. The list can be seen below: