Having secured such enterprise clients as TD Ameritrade and the Globe and Mail, stock market analysis company Patchell Brook Equity Analytics is expecting dramatic growth in 2019.
The Miramichi company’s product is StockCalc—an automated service designed to calculate the intrinsic value of publicly traded companies and exchange traded funds.
“Every night we run six different valuation models on 8,000 stocks that trade on the Canadian and U.S. markets,” said Founder and CEO Brian Donovan in an interview. “We let you load the analysis for a company, we present our findings and let you do your own testing and your own ‘what-if’ analysis.”
StockCalc performs fundamental analysis, which is the process of assessing a company’s appropriate price on the basis of its overall health. The algorithm uses a weighted average of six criteria, such as cash flow and the pricing of other, comparable stocks.
Users pay a subscription fee that gives them access to reports detailing the results of the technical analysis.
The algorithm applies all six metrics whenever possible, but in some cases may discard one or more. For example, one of the metrics involves cash flow, which would not be appropriate to apply to a pre-revenue mining company.
Exchange traded funds—collections of equities that can be bought and sold as a unit—are analyzed based on the equities they track.
Companies or funds that the algorithm values at above their current market prices are considered to be “undervalued”. Companies that the algorithm values at below their current market prices are considered to be “overvalued”.
Investors typically buy undervalued stocks and sell overvalued stocks, with the expectation that the market price will eventually move in the direction of the company’s fundamental value.
Donovan said the actual market price of a stock or ETF eventually reaches StockCalc’s target price in about seven out of 10 cases. The target price, meanwhile, continually evolves to reflect new data about the company.
StockCalc subscriptions can be purchased by individual investors, investment advisors and larger corporations. Individual investors pay $39 per month, financial advisors pay $199 per month and enterprise rates vary on a case-by-case basis.
Enterprise clients include TD Ameritrade and the Globe and Mail, both of whom buy the service for the use of their own customers.
Donovan founded Patchell Brook in 2013 and spent several years working on the StockCalc software before it was released. The current iteration has been online for about a year, with four full-time staff and one-part time employee currently working on it.
The company has completed three small fundraising rounds and is in the process of a fourth, larger round.
The New Brunswick Innovation Foundation, the Miramichi Technology Fund and Technology Venture Corporation have all participated in the investment rounds.
The money from the current round will be used to ramp up expansion efforts and grow Patchell Brook’s customer base.
“This is a growth round for us. This is going to allow us to add sales and marketing capacity and to drill down into our target markets,” said Donovan. “The product is in very good shape, and this will allow us to spend a lot of time on the sales part.”