Robert McWhirter Questor Technology QST-X BUY Nov 25, 2019

They operate mobile incinerators at oil wells, namely in Mexico. Free cash flow is up 58% YOY. Trailing ROE is 26%. Earnings will grow 29% in 2020, 23% in 2021. Trades at a good 8.6x PE in 2020. Expected 30% upside. (Analysts’ price target is $6.21)

He likes their story and has been difficult to but as he is waiting for an equity issue, but it never comes. He does not think they will raise money until they need it. The stock has had nice move and the liquidity is a challenge. Their are tailwinds behind it.

This will be tied to the energy space. They produce technology to reduce field flaring from sour gas. They saw a great uptick in their stock price when the moved from manufacturing the equipment to renting it. He thinks when the gas sector picks up, this will move up quickly. He expects regulation for cleaner technologies will continue to increase. He does not own it -- yet.

It's too small for him. It boasts $15 million cash for a $30 million company, which is impressive. Lots of cash flow. PE is too high. The stock tumbled and has flatlined. Now, you can start a partial position, then add if it falls 10-20% or shows technical strength.

(A Top Pick Dec 27/19, Down 49%) They make highly efficient incinerators. The methane gas pollution that other incinerators create is banned in many US states, so Questor fills this gap its cleaner ones. So, there's a huge opportunity in the States, including Texas. The company is work. Further opportunities for the, but especially in garbage dumps.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research. Low O&G CAPEX hurting growth. Clean technology trends are supportive. Shift to rentals, declining unit sales.

Trevor Rose’s Insights - Trevor’s most-liked answers from 5i Research.

EPS of ($0.03) was in line with estimates and revenues of $1.66M missed estimates of $1.9M. Revenue grew by 55% for the quarter and this was largely due to increased sales activity, particularly in Canada where demand for tall stack units is high. 
Gross margins improved as the company focuses on cost control, and it managed to narrow its loss from ($2.3M) for the same period in the prior year to ($0.9M) in the recent quarter. 
The company incurred $1.0M for allowance for doubtful accounts on its long outstanding receivable on the Mexico project, as the customer has insufficient heat to run its power generation equipment. 
The company has a $29.2M equity position, and so we would consider it fairly contained at this point, but it is worth keeping an eye on. Management has noted they are working on a solution with the customer. 
We consider these good results, and the market has reacted positively so far.
We like the progress that management is making toward profitability while maintaining a high rate of growth. 
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QST a microcap company that manufactures waste gas combustion systems, and is now trading at 0.8x times' Price/Book. In the 2Q, QST’s revenue declined by around 10% to $2.2M, compared to last year of $2.45M and EPS was -$0.02, flat compared to last year. The balance sheet is strong, with a net cash of $14.4M (market cap is around $24M). The company has been generating around $2M in cash flow in the trailing-twelve-months. There was a recent insider purchase, but the amount was not significant (around $50k in total). Overall, QST has some financial strength to endure a market downturn, but simply being public is a big cost to the company. Having said that, revenue growth in the last five years was quite cyclical, revenue in the trailing-twelve-month did not get back to FY2019 level, and the company is still operating at a loss. Based on consensus estimates, sales are expected to grow strongly, around 50% next year. We consider the name to be highly volatile, but there could be a floor of some sort given that most of the company's market cap is cash. The energy sector is its main customer and we are a bit surprised it hasn't done better considering this. The four new board members look fine, but we would like to be in the know of what happened internally. It is fairly unusual for a CEO to return after 'discussions' and get four Board members to flip. We think the new management needs time. Overall, we would not endorse this on size risk and cash flow alone. However, it is one to watch to see if any turn can be executed here. Sales overall are still half the level of nearly seven years ago, and this has to improve to generate any interest. 
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At only $10M market cap, simply the cost of being public is a big drag to the company. It has some cash, but cash flow is weak, and it would take a very strong turnaround to get investors interested in such a small company again. We would prefer to take our lumps and move on. 
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