However, there are always buying opportunities available. That’s especially the case following a major fall in the wider stock market. With that in mind, here are two stocks that could offer impressive returns in the long run.

Improving outlook

Reporting on Tuesday was cross-border payment services company Earthport (LSE: EPO). The company’s half-year results showed that revenue grew by 8% compared to the prior period. Its transactions and payment volume continued to be robust, with payment volume increasing by 12%. Average revenue per transaction was up by 9% to £2.87, with this largely being caused by the discontinuation of the low-value e-commerce business.

The company enters the second half of the year with a record pipeline. This could put it in a strong position to deliver further growth, with there being particular opportunity within the banking and e-commerce sectors. The business is still aiming to become cash flow break-even by the end of the next financial year. This could have a positive impact on its share price performance and may show investors that it has the capacity to deliver strong returns.

Clearly, Earthport is a relatively small and unprofitable business which comes with a significant amount of risk. However, with its shares falling by 60% in the last year, it could offer good value for money at the present time. For less risk-averse investors, the stock could be worth a closer look for the long term.

Consistent growth

Offering a lower-risk opportunity for the long term within the software and computer services industry is Sage Group (LSE: SGE). The company has an excellent track record of delivering earnings growth, with its bottom line having risen in each of the last five years. Further growth is expected during the next two years, with the company’s bottom line forecast to rise by 11% in the current year, followed by 10% next year.

Despite such a solid growth profile, the company trades on a price-to-earnings growth (PEG) ratio of just 1.8. At a time when the FTSE 100 has generated strong growth over a sustained period, this suggests that the company offers a wide margin of safety that could lead to share price rises over the coming years.

With Sage Group expected to yield around 3% next year, it could offer income investing potential. Dividend payments are due to be covered twice by profit next year, which suggests that there could be further scope for increases in payouts to shareholders over the medium term. As such, the income potential and capital growth prospects of the stock appear to be highly enticing even in a volatile period for the wider stock market.

The post 2 growth stocks on offer at deep-value prices appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended Sage 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.

Difficult period

The company’s anticipated revenues for the current year are expected to sit between 10% and 15% below current market expectations. This is partly due to delays in some expected contracts and client implementations, as well as a recent change at one of its leading e-commerce clients.

Although many of these contracts are due to complete within the current financial year, they will result in lower revenues. Recent changes at an existing e-commerce client have meant the loss of around 5% of projected revenue, as the client has changed its plans for a UK corridor for domestic payments for reasons specific to it.

Growth potential

Despite this, the company remains upbeat about its outlook. It continues to invest in sales capacity and its pipeline is expected to have a positive impact on revenues by the end of the current financial year. It is seeing continued expansion of international corridors by large existing clients, while its weighted and unweighted new business pipeline for the next financial year is already over twice that of the current year, with further growth expected.

Therefore, it seems as though a turnaround is possible over the medium term. However, in the short run it would be unsurprising for Earthport’s share price to move lower as investors digest its disappointing update. As such, it may be worth avoiding at the present time.

High returns

Also operating within the financial services sector is Prudential (LSE: PRU). The life insurance and diversified financial services provider appears to have a bright long-term future. It is expected to grow its bottom line by 6% in the current year, followed by further growth of 9% next year. This puts it on a price-to-earnings growth (PEG) ratio of just 1.4, which suggests that it offers a wide margin of safety.

With Prudential having a dividend yield of 2.6%, many income investors may have dismissed it as a potential buy. However, the company is expected to increase its shareholder payouts by around 8% in the next financial year, which is well ahead of inflation. Furthermore, with dividends being covered 2.9 times by profit, there seems to be scope for them to rise at a much faster pace than profit in future years. This could make the company a strong income play – especially at a time when inflation is already at 3.1% and is forecast to move higher.

As such, Prudential appears to offer a potent mix of income and capital growth prospects. With a diverse business model and a sound track record of delivering on its potential, now could be the perfect time to buy it for the long run.

The post Should I pile into Earthport plc, down 30% today? appeared first on The Twelfth Magpie.

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Peter Stephens owns shares in Prudential. 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.

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.

Specifically, Earthport was able to maintain gross margins at 75% and has increased transaction volumes by more than 70% from the first half of the prior year. And with scope to expand into Asia and the Middle East, Earthport continues to offer a relatively bright long term outlook.

Looking ahead, Earthport is expected to remain a loss-making entity in the current year and following today’s major share price fall, it may be prudent to wait for further news on its restructuring before buying a slice of the business. That’s especially the case since the market remains nervous following recent index falls, with investors likely to seek out less risky stocks at the present time.

Operating within the same sector as Earthport is Watchstone (LSE: WTG). The company formerly known as Quindell continues to undergo its own restructuring, but interestingly it appears as though it is set on retaining the conglomerate-style structure of its past. Certainly, a number of businesses are being deemed ‘non-core’ and are being disposed of, while others are being merged. However, Watchstone is still comprised of six main businesses according to its website, with them ranging in operations from health care to energy services.

Such a structure may offer a degree of stability on paper since the different divisions may not be highly correlated in terms of their financial performance. However, a conglomerate structure can also lead to inefficiencies and it has therefore become less popular today than it once was. With a number of other tech/finance/health care businesses offering good value for money and bright futures, there appear to be better options than Watchstone elsewhere.

One company which does appear to be worth buying right now is Micro Focus (LSE: MCRO). It has outperformed the FTSE 100 by 43% in the last year and with its bottom line expected to rise by 7% in the next year, Micro Focus remains a relatively consistent and reliable growth play. Furthermore, it trades on a price to earnings growth (PEG) ratio of just 1.9 and this indicates that there is scope for further capital gains moving forward.

In addition, Micro Focus could become a sound income play, too. It may only yield 2.4% at the present time, but it is expected to increase dividends per share by 9% in the next financial year. With dividends being covered 2.5 times by profit, there is the prospect of further rises in shareholder payouts which could cause investor sentiment to improve in the coming years.

The post Will Earthport plc, Watchstone Group PLC & Micro Focus International plc Beat A Volatile Market This Year? 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?

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has recommended Micro Focus. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.