Cheap FTSE 100 penny stock

Broadcaster ITV (LSE: ITV) has seen its market-cap tumble almost 30% year-to-date. Based purely on this, investors might suspect that trading has been awful. However, this simply isn’t the case. The £3.4bn-cap recently revealed a 48% jump in pre-tax profit and 24% rise in total external revenue growth of 24% in 2021. On top of this, the company kept its word and reinstated the dividend.

So what’s got investors flustered? It all seems down to the company’s plan to “supercharge” its streaming services and launch ITVX. As interesting a development as this is, it will require an awful lot of cash to get going. In addition to the cost, some investors are clearly sceptical of ITV’s ability to challenge established giants such as Netflix or Amazon. 

Valid concerns as these are, I believe the market is probably being too pessimistic. ITV still boasts an impressive list of popular productions. Debt is also coming down and a total dividend of 5.71p per share has been estimated for FY22. That’s a chunky yield of 6.81%, easily covered by profit. All this for a penny stock now trading at just six times earnings.

So as bad as the last few weeks have been, I’d be comfortable buying a slice of ITV today, just as I was before this month’s update. 

50% down! 

Another penny stock I’d consider is dotDigital (LSE: DOTD). It provides solutions to other businesses for automating their marketing campaigns across social media and email.

Despite the clear demand for what it does, holders have endured a torrid time of late. The shares have halved in value since the beginning of 2022. What’s brought on this capitulation?

Well, investors’ growing aversion to growth stocks in recent months can’t have helped. Nor can more recent news that full-year revenue growth will now be lower than expected “during the current and future financial years“.

Nonetheless, dotDigital looks like a fundamentally good business to me and possesses many of the qualities I look for. Margins are pretty high. Returns on capital — essentially, what a company gets back for the money it puts in — have been consistently decent too.

Recurring revenue also now stands at 94%, giving the company good visibility on trading. If CEO Milan Patel is right and the “dramatic acceleration” in the adoption of digital marketing is “set to endure,” DOTD might prove a great buy at these levels.

Risks to consider

Cautiously bullish though I am, there’s nothing to say things won’t get worse before they get better for either penny stock. The awful conflict in Eastern Europe may continue impacting general market sentiment, dragging the share prices of both companies lower.

dotDigital might be particularly at risk here. A forecast P/E of 23 still looks punchy considering the amount of competition it faces. ITV shares could also sink lower if, for example, advertising revenue dips again. 

However, the time to buy shares is when the expectations are (temporarily) low. I think that might be the case here. With a bit of patience, I reckon these penny stocks can still deliver. 

The post This cheap FTSE 100 share isn’t the only penny stock I’d consider buying appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended ITV and dotDigital Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

As investors, we learn that the greatest gains can often come where others fear to tread. So, could those buying now profit handsomely in time? It’s certainly possible. News of a vaccine or simply a drop in infection rates could see markets rally. In such a situation, it’s likely that the biggest victims of the pandemic will fly the highest. 

Having said this, it’s vital to consider the risk/reward payoff. The reason the IAG share price is so low (not helped by the recent equity fundraising) is because the market is concerned that it will take air travel a long time to fully recover. We’re talking years, not months. On top of all this, the company is understandably no longer paying dividends. For me, this was the chief attraction to owning the shares in the past.

In light of this, I think investors should consider alternative, high-growth destinations for their cash. Here are just two suggestions.

Dotdigital

In July, software provider dotDigital (LSE:DOTD) said that the pandemic had a “minimal impact” on trading since most of its revenue (estimated at 85%) was recurring. Indeed, adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) was now expected to be “comfortably ahead of market expectations“.  In contrast to the IAG share price, dotDigital’s valuation understandably soared!

In addition to this momentum continuing into the new financial year, the firm announced yesterday that it would be included in the government’s G-Cloud initiative. A new market for dotDigital, G-Cloud is a platform allowing public sector organisations to buy services without running a full tender.

Any drawbacks? Well, the shares certainly aren’t cheap at 39 times forecast FY21 earnings. Then again, the company reeks of quality with consistently high margins and returns on capital employed. Importantly, it also has net cash on its balance sheet — handy given the outlook for the global economy. 

At this price, dotDigital isn’t a screaming buy, but it’s certainly one to consider scaling into and/or buying on any dips. 

Mortgage Advice Bureau

Another stock posting great growth recently has been Mortgage Advice Bureau (LSE: MAB1).

Despite “an exceptionally challenging market“, yesterday’s interim results for the first half of 2020 included a 4% rise in revenue (to £63.5m) and 6% increase in adjusted pre-tax profit (to £7.9m).

Since the housing market reopened, the company has seen “continued strong trading“. New applications have climbed to record levels and its share of the new mortgage lending market rose 17%. 

As a result, the firm’s management expects that adjusted profit before tax for the full year will come in “significantly ahead” of what the market was predicting. This is dependent, of course, on no further coronavirus-related restrictions being announced. 

The shares currently trade on a very high 41 times earnings. However, a PEG (price-to-earnings/growth) ratio of just 0.5 suggests investors will actually be getting quite a lot of bang for their buck.

Like dotDigital, I think this company warrants more attention, particularly from those tempted by the IAG share price.

The post Tempted by the IAG share price? I’d consider these top growth stocks instead appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended dotDigital Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The problem with this approach is that you’ll probably struggle to earn enough interest to keep ahead of inflation. This means that as the years pass, the purchasing power of your savings may fall.

Although I’d always aim to keep several months’ living costs saved in cash, I believe stock market investing is one of the best ways to increase the real value of your savings over time.

Here’s one I’d buy today

The first company I want to look at today is a tech stock that’s risen by 300% over the last five years.

Dotdigital Group (LSE: DOTD) is a premium email marketing platform which integrates with many popular website shopping systems. It’s evolving through the use of new technology, such as artificial intelligence, and plays an increasingly active part in its customers’ marketing efforts.

Growth remains strong. According to figures released today, sales rose by 35% to £43.1m last year. Adjusted operating profit grew 22% to £10m.

Customer numbers also rose by 26% to 689, while the firm’s average revenue per user rose 18% to £845 per month. Both numbers seem fairly impressive to me, and should support future growth.

Not too late to buy

You might think that it’s too late to buy this high-tech success story. I’m not so sure. Broker forecasts suggest that earnings should rise by another 20% this year, putting the stock on a 2018/19 forecast price/earnings ratio of 23.

Given the group’s strong cash generation, and high return on capital employed of 26%, I think this business could continue to generate growth for its shareholders. It’s not cheap, but I remain bullish about this stock.

Motoring ahead

A larger company I like from the high-tech marketing sector is car listing website Auto Trader Group (LSE: AUTO).

The group’s used car listings are all online these days and it’s become a very profitable enterprise.

Although the core used car business might have limited growth potential, Auto Trader is also expanding into the wholesale (auction) and new car listing markets, via contracts with big dealership groups.

Like property rival Rightmove, Auto Trader benefits from a network effect — dealers have to list their stock on the website because that’s where everyone looks. This gives the firm strong pricing power.

Figures for the year to 31 March showed profit margins continuing to rise. Revenue rose by 7% to £330m, but average revenue per retailer forecourt climbed 9.6% to £1,695. Pre-tax profit was 10% higher, at £210.8m.

The group’s operating profit margin last year was a staggering 66%. Such a high level of profitability means that the business generates a lot of spare cash.

A cash machine

My sums show that free cash flow available to shareholders, after debt repayments last year, was £145.2m. All of this was returned to shareholders, through £96.2m of share buybacks and a £52.2m dividend payout.

I’m confident the business can retain its leading share of the car listings market. And regular share buybacks should mean that earnings per share keep rising, even if profit growth slows.

Auto Trader currently trades on 21 times 2018/19 forecast earnings, after recent falls. That seems fair to me. I’d keep buying.

The post Forget the cash ISA! These fast-growing dividend stocks could help you retire rich appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Facebook and Twitter. The Motley Fool UK has recommended Auto Trader, dotDigital Group, and Rightmove. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Priced at 970p a pop almost exactly one year ago, the same shares now change hands for just 267p after dipping another 11% in early trading. That’s almost 75% wiped off the company’s value in just 12 months. 

But as buying when everyone is selling can sometimes be very lucrative, is now the time for value aficionados to consider begin taking a closer look?

Profits plummet

System 1 saw revenue sink 18% (17% in constant currency) to just under £27m in the year to the end of March. If you think that’s bad, consider that pre-tax profit slumped 68% to just £1.99m compared to the £6.28m the year before. To describe that sort of financial performance “disappointing” — as the company did earlier today — is something of an understatement. 

The reason for such a dramatic fall was known in advance, of course, with CEO John Kearon confirming that System 1 had been “slow to appreciate the speed and scale of change” in its market. Having ascertained that the marketing budget cuts implemented by its clients were “significant and probably permanent“, Mr Kearon went on to state that 2018/19 would be “a period of transition” for the firm as it attempts to push its “more competitive and scalable offer” in the tough environment.

Considering the push towards low-cost automated solutions is likely to “continue unabated” and the fact that rivals are now adopting the firm’s previously unique approach (using behavioural science to inform marketing strategies) with greater frequency, that certainly won’t be easy. 

Despite the limited revenue visibility, it’s not all doom and gloom. The balance sheet still looks decent with £5.78m left in cash at the end of the reporting period and no debt. The final dividend of 6.4p per share was also maintained, although the possibility of a cut in the future can’t be ignored. 

Having been positive on the company in the past, I admit to being disheartened by the speed of System 1’s decline. While I can see value at this price, it’s clear that the road to recovery will be long and painful. Only patient investors need apply.

Better prospects?

For those who regard System 1 as too risky, small-cap software-as-a-service provider Dot Digital (LSE: DOTD) could be a decent alternative.

Despite some impressive interim numbers in February — including a 25% jump in group revenue (to £18.8m) and 8% rise in EBITDA (to £5.7m) in the six months to the end of September —  the Croydon-based company’s stock has fallen back in recent months, perhaps influenced by the Facebook/Cambridge Analytica scandal. I see this as an opportunity.

Right now, analysts are predicting a 30% rise in earnings per share for the 2018/19 financial year, leaving the stock trading at 19 times earnings. For a business that boasts partnerships with goliaths such as Microsoft and strong international growth ambitions, that looks pretty reasonable to me. Returns on sales and capital employed — a couple of the hallmarks of quality companies — are consistently high and a lack of debt (and cash balance of £10.5m) should appeal to investors who like their holdings to be in rude financial health.

The post Here’s why this battered small-cap’s share price keeps falling appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended dotDigital Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Since then, sentiment has returned with Domino’s shares climbing back to 350p by start of 2018. Based on today’s news — and initial market reaction — I think this momentum should continue as we move through the year.

Above expectations

Today’s Q4 update revealed that trading had been ahead of the firm’s expectations with “good volume growth” helping to offset recent investment in the business. In the 13 weeks to Christmas Eve, group sales rose a very healthy 18.2%.

Broken down, sales in the UK increased just over 10%, helped by 37 new stores being opened over the reporting period. Events such as the X Factor final also led to more families staying at home and ordering food to be delivered with online sales rising 14.5%.  

Elsewhere, Domino’s continues to execute its international growth strategy with new stores added in Switzerland, Norway and Sweden. Acquisitions were also made in Iceland and Germany. All told, the company now operates just under 1,200 sites.

As a result of today’s stellar numbers, the company now expects underlying pre-tax profit for the full year will come in“slightly above the current range of market expectations”. A reduction in capital expenditure estimates for the last financial year — from a range of £50m-£60m to somewhere between £45m-£50m — also appeared to please the market. 

Thanks to the consistently excellent returns on the money it invests, high operating margins and decent free cash flow, Domino’s stock is unlikely to ever be screamingly cheap, trading at 22 times earnings before today, based on growth estimates for the new financial year. Nevertheless, I remain convinced that the company is a great pick for quality-focused investors.

Transformational times

Last year was huge for AIM-listed dotDigital (LSE: DOTD), a stock that first captured my attention last July. With a recent trading update referencing “strong strategic progress” being made at the Software-as-a-Service (SaaS) provider, 2018 looks like it could be even better. 

Group revenue rose to £18.8m over the last six months, a 25% increase on the H1 2016/2017 financial year. Encouragingly, the same percentage of total sales now come from overseas, with revenue from the US up 44% to $3.3m, and Asia Pacific regions up 75% to £0.9m. Earnings before interest, tax, depreciation, and amortisation are also expected to be in line with management expectations.

As part of its strategy to create a “fully integrated omnichannel marketing platform“, dotDigital purchased Comapi over the reporting period, thus explaining why its cash balance had more than halved by the end of 2017. In addition to stating that the last six months had been “transformational”, CEO Milan Patel reflected that revenues since the acquisition had exceeded the company’s original expectations.

Shares in dotDigital’s have climbed 65% in value over the last 12 months. While trading at 33 times forecast earnings suggests a lot of positivity is already reflected in its valuation, I wouldn’t rule out a further rise before interim results are officially announced at the end of February.

The post 2 monster growth stocks I’d buy this year appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Domino's Pizza and dotDigital Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Positive performance

Reporting on Tuesday was provider of intuitive software as a service (SaaS) and managed services Dotdigital (LSE: DOTD). It has seen the positive trading momentum in its 2017 results continue into the first half of the new financial year. Its progress has been driven by international sales and growing demand for its dotmailer platform in the e-commerce market. It is progressing in line with expectations and has been able to strengthen its relationships with a number of key partners.

The company is continuing to execute its strategy to become a fully integrated omnichannel and conversational commerce service provider. The integration of the recently acquired Comapi group of companies is under way, while a significant contract win has been achieved recently that helps to underpin its 2018 revenue expectations.

With Dotdigital trading on a price-to-earnings (P/E) ratio of 39, it may appear to be overvalued at first glance. However, the company is expected to record a rise in its bottom line of 22% in the next financial year. This puts it on a price-to-earnings growth (PEG) ratio of around 1.8, which suggests that it is not overvalued at the present time. With its business model seemingly sound and its progress continuing to be upbeat, the stock could be a strong performer in the long run.

Improving outlook

Credit check specialist Experian (LSE: EXPN) could also deliver impressive total returns in the long run. Its most recent update showed that the business continues to perform well, while it expects its organic revenue growth to improve as the year goes by. In fact, it is forecast to post a rise in earnings of 8% in the current year, followed by growth of 9% next year.

The company appears to offer a relatively consistent growth outlook. It has been able to grow its bottom line in four of the last five years. While it trades on a P/E ratio of 22.4, its consistent performance means it could offer a lower risk profile than many of its FTSE 100 peers. Dividend growth could also be strong in future, since the company’s shareholder payouts are currently covered 2.2 times by profit. This suggests that in time, its 2.1% dividend yield could increase significantly.

Although there may not be the scope for exceptionally high earnings growth from Experian, the stock could deliver dependable returns over a long period. With the impact of compounding, its total returns in the long run could be high.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended Experian. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

One of my rules when investing in small-cap stocks, is that I only invest in companies that are actually profitable. I’ve found that this strategy tends to minimise big losses. With that in mind, here’s a look at one company that meets my criteria and one that doesn’t.

Earthport

£115m market cap Earthport (LSE: EPO) is a financial services company that provides cross-border payment services to financial institutions. The company’s global payment network powers transactions for some of the world’s largest financial institutions, e-commerce companies, money transfer organisations and payment aggregators. Earthport claims that it is “uniquely positioned to act at the centre of fundamental change in global financial services.” That certainly sounds like an interesting story, however, there’s one thing that turns me off investing here – the company appears unable to make a profit.

While sales have risen quite spectacularly in recent years, from £2.5m in FY2011 to £22.8m for FY2016, an analysis of the company’s profits reveals a less glamorous picture. Indeed, over the last three years, Earthport generated net losses of £6.7m, £8.7m, and £8.2m. Full-year results for FY2017 released today reveal a similar pattern. Revenues increased by 33% to £30.3m, while net losses climbed by 47% to £12.1m. The market is clearly unimpressed, with the stock down 5% at present.

Earthport could go on to be a great investment in the future, given the increasing demand for global payment services, but for now, I’ll be avoiding the stock simply due to the fact that profits are elusive. 

dotDigital Group

One stock that I do rate quite highly at present is email marketing specialist dotDigital Group (LSE: DOTD). I first bought shares in this small-cap tiddler almost four years ago, at a price of just over 20p. Today, the shares change hands for 89p, so I’m pretty happy with the return on my investment. Having said that, I believe there could be further gains to come for long-term investors.

Its core product ‘dotmailer’ is a nifty piece of software that enables clients to effortlessly construct marketing emails. The software is used by clients such as Barbour, Converse and Fred Perry, and the popularity of the platform has seen sales surge in recent years. Indeed, over the last three years, sales have almost doubled, rising from £16.2m to £32m. Earnings per share have more than doubled, increasing from 1.19p to 2.42p.

Recent final results for the year ended 30 June were excellent, with revenue rising 19%, profit before tax increasing 30% and earnings per share climbing 32%. Revenues outside the UK surged 48% and the company signed some key new clients during the year including The Premier League, Superdry and CNBC.

Looking forward, City analysts predict dotDigital’s strong growth to continue, with revenue growth of 24% forecast for FY2018, along with a 14% rise in earnings per share to 2.77p. That earnings estimate places the stock on a forward P/E of 31.9, which clearly isn’t the cheapest valuation around. Yet given dotDigital’s consistent growth, it doesn’t look unreasonable, in my view.

A glance at the long-term chart reveals that the stock is clearly trending upwards, and for that reason, I won’t be selling my shares yet. As they often say in investment circles, “the trend is your friend.”

The post One fast-growing small-cap stock I’d buy right now, and one I’d avoid appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in dotDigital Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Here’s why I think the market has overreacted.

Profit warning

Granted, things could be better. While order intake has remained similar to that announced at its last trading update in May, the trend from week to week in Q2 has been “more volatile” than that experienced “for a long time“, according to the company.  

Following on from May’s AGM statement (which also prompted a fall in its share price), Safestyle now believes it will report “marginal revenue growth” and “reduced profits” for the first half of 2017. Sensing that consumer confidence will continue to weaken, the company also revised its full-year outlook by stating that profits were likely to be “broadly in line” with those achieved in 2016.

While today’s update is concerning, it’s not completely unexpected given the prevailing economic uncertainty. It’s also apparent that Safestyle continues to outperform its competitors based on recent statistics that point to a market decline of over 10% in terms of volume. Should the housing market suffer as economic pessimism grows, I believe Safestyle could be in a solid position as more homeowners consider making improvements to their existing properties rather than moving on.

In addition to the above, it appears to be the epitome of sound financial management. Cash flow remains strong and, despite considerable investment in new facilities, the company’s net cash position of almost £18m at the end of June should act as a decent buffer during tough times. Today’s announcement that management had already taken steps to reduce operating costs in H2 should also comfort those already invested. 

While the shares could certainly fall lower if sentiment worsens over the next few months, I think Safestyle warrants consideration once the dust has settled. Already trading at just 11 times earnings and offering (for now) a yield approaching 4.7%, I suspect this could be one knife worth catching.

A safer bet?

Of course, there are plenty of other options available to investors in the small-cap universe. Another reporting to the market this morning was email and marketing automation software provider dotDigital (LSE: DOTD).

In complete contrast to Safestyle, overall revenues at the Croydon-based company rose by 19% (to roughly £32m) over the year to the end of June. Revenue growth outside the UK was particularly strong (up 48%), with the Asia-Pacific market registering the strongest growth (up 156% to £700,000).  

With 81% of total group revenues now recurring and the average spend per client increasing by 24% to about £715m per month, I can’t see demand for the £210m cap’s services drying up anytime soon. Indeed, having completed his first full year as CEO, Milan Patel reflected that the “building blocks” were “now in place” for the company to perform strongly over the next year. 

Trading at 26 times forward earnings, shares in dotDigital look fully valued right now. Even so, I’m still attracted to the stock. Bear in mind that this company has shown a real ability to generate consistently high returns on the money it invests. At around 25%, operating margins are seriously good and dotDigital has the sort of free cashflow and balance sheet that would turn many companies green with envy.

The post Is Safestyle plc a falling knife to catch after dropping 10% today? appeared first on The Twelfth Magpie.

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• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any shares mentioned. The Motley Fool UK has recommended Safestyle UK. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

dotDigital Group

Do you ever receive emails from retailers advertising their promotions and sales? I do and I have to admit, they’re quite effective at getting my attention. That’s why I like dotDigital Group(LSE: DOTD), a leader in the digital marketing space. Its key product Dotmailer enables firms to send customised marketing emails within minutes and the product is proving to be very popular with clients.

DotDigital has grown its revenues from £9m in FY2011 to £26.9m in FY2016 and shareholders have been well rewarded over the last five years with the share price jumping from around 8p in 2011 to over 50p today. However in my opinion, the company is still very much under the radar and I believe there’s more growth to come.

The group released another impressive set of results this week, with turnover and earnings per share increasing 26% and 12% respectively for the year ended 30 June 2016. Recurring revenues were lifted from 76% to 78%, and the company’s cash position was boosted to £17.3m at year-end, up from £11.9m last year. To top it off, dotDigital increased its final dividend from 0.36p to 0.43p and announced a special dividend of 0.41p, taking the total payout to 0.84p, a yield of around 1.6%.

The market was underwhelmed by the results, with the share price dipping a few percent on Tuesday, however that’s a pattern I’ve noticed before with dotDigital. The share price will fall on respectable results, but then move higher in the coming weeks and months.

I believe it’s an exciting time for dotDigital with the company looking to grow throughout the EMEA, North America and Asia Pacific regions. It currently trades on a P/E ratio of 24 times next year’s estimated earnings, which I don’t think is unreasonable for a company that’s growing quickly and consistently.

Redcentric

Another small-cap that looks to be flying under the radar is IT services provider Redcentric(LSE: RCN).

Redcentric offers its clients a range of IT services such as infrastructure, network, cyber security and cloud services and has built its business model around generating long-term recurring revenues from its clients. It’s a business model that appears to be working well, with revenue jumping from £58m two years ago to £110m for FY2016. Analysts predict revenues to continue climbing with growth of 9% and 8% forecast for the next two years.

The company announced in late September that with the help of recent acquisitions it was seeing low-double-digit headline recurring revenue growth for the first half of FY2017, and that the board remained confident in the outlook for the business.

After a 20% fall in the share price since May, Redcentric is now trading on an appealing P/E ratio of around 14 times next year’s estimated earnings, which looks to be good value to me.

The post Are these small-cap stocks set to soar? appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Edward Sheldon owns shares in Dotdigital Group. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

I now steer clear of stocks that are generating intense bulletin board speculation, and focus on companies that are quietly generating consistent revenue and earnings growth. I’ve found this method dramatically reduces the chance of investing in a company that goes on to lose the majority of its value.

There are some really interesting opportunities in the small-cap technology sector at the moment – here are four stocks that I like. 

Digital Marketing

Dotdigital Group (LSE: DOTD) is a leader in the digital marketing space with the company’s key product Dotmailer enabling clients to send customised marketing emails within minutes.

A trading update released last week was excellent, with management stating that revenue is likely to jump 26% year on year and that EBITDA will be ahead of market expectations. The company also noted that average revenue per client was up 29%. 

Revenue has grown from £12.2m in FY2013 to £24.2m in FY2015. With email remaining a popular form of communication between companies and their customers, I believe there’s more to come from Dotdigital, even though the company trades on a high P/E ratio of 26.9 times next year’s earnings.  

Online identification

Proving your identity online has generally become a lot easier in recent years and identity specialist GB Group (LSE: GBG) is at the heart of this process. GB Group combines trillions of data records from all over the world relating to people’s identity to help its clients make the right decisions about the customers they serve. 

Results in June revealed that revenue rose 28% year on year, including organic revenue growth of 16%. Adjusted earnings per share were up 34%. 

Revenue has climbed from £24.2m in FY2011 to £73.4m in FY2016 – a compounded annual growth rate of almost 25%.

GB Group has traditionally traded on a high P/E ratio (currently 29 times next year’s earnings), but this is a company with strong momentum delivering annualised returns of 45% per year to shareholders over the last five years. 

Cybercrime

With cyber hacks becoming more frequent, business is booming at cyber security specialist NCC Group (LSE: NCC). Indeed, recent results revealed that revenues were up 56% on last year, including 19% organic growth.  

Earnings have grown from 5p per share in FY2011 to 9p for FY2016 and growth shows no sign of slowing down with analysts estimating FY2017 earnings of 12p. A P/E ratio of 25 times next year’s earnings reflects a quality company operating in a high growth area.

Rise of the machines

Earlier this week it was announced that Japanese company SoftBank had shelled out a whopping £24bn to purchase ARM Holdings, looking to capture “the very significant opportunities provided by the Internet of Things”. There’s no doubt machine to machine communication is a exciting growth area and if you’re looking for small cap exposure, check out Telit Communications (LSE: TCM). 

Revenue at Telit has grown from £177.4m in FY2011 to £333.4m in FY2015 and while a profit warning in October dampened enthusiasm towards the stock, the share price now appears to be trending up again. 

City analysts expect growth to pick up in the second half of this year and with the stock trading on P/E ratio of 13.9 times next year’s earnings, now could be a good time to take a look at this IoT specialist. 

The post 4 hot small-caps with super growth potential appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Edward Sheldon owns shares in Dotdigital Group and NCC Group. The Motley Fool UK owns shares of NCC. The Motley Fool UK has recommended ARM Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.