Contrarian play

While the rest of the restaurant market is struggling, Fulham Shore (LSE: FUL), owner of the Franco Manca and The Real Greek brands, is powering ahead. 

Considering the state of the rest of the restaurant industry, I wouldn’t blame you for wanting to stay away from Fulham Shore. However, the firm seems to be firing on all cylinders. The shares jumped 10% in early deals this morning following a pre-AGM trading statement which states: “There have been encouraging revenue increases in both Franco Manca and The Real Greek in the first 21 weeks of the financial year.“

The trading update goes on to note that revenue has been rising thanks to “a slightly greater number of transactions” driven by “menu innovation, the quality of food, the value of our propositions and dedication of our team.” It speaks volumes about the company’s offering to customers that Fulham Shore is managing to grow at a time when the rest of the casual dining sector is struggling.

The question is, can the company keep this up? I believe it can. Unlike other operators, Fulham Shore is not rushing to expand. There has only been one net addition to the group’s restaurant portfolio so far in fiscal 2019. And while management is in “the final stages of negotiations” for several new locations, the development of these will be funded “largely through internally generated cash flow.“

Unsustainable debt burdens are one of the primary reasons why restaurants go out of business. It’s refreshing to see that Fulham Shore doesn’t want to make the same mistake. 

City analysts have the company reporting EPS of 0.7p for 2018, on a net profit of £3.1m. Revenue is expected to grow 29% year-on-year. Based on these figures, the stock trades at a forward P/E of 16.2 which, in my mind, is a price worth paying for such a fast-growing enterprise. 

Undervalued tech play

I’m equally bullish on project management software business, Elecosoft (LSE: ELCO). 

After several years of consolidation, City analysts have the company reporting earnings per share growth of 33% for 2018. Personally, I believe there’s a chance the firm could beat this number. In a trading update for the six months to 30 June, published the beginning of this month, management told investors unaudited profit before tax was up 45% year-on-year. 

Looking at these numbers, it’s no surprise to me that the stock is trading at a forward earnings multiple of 21. In my mind, this valuation undervalues the business’s potential. Analysts have earnings growing by another 20% in 2019, and that’s before the impact of any acquisitions. 

In July, the company acquired Shire Systems for £6.3m to boost its stable of products. And with a net cash balance of £2.3m, I wouldn’t rule out further deals in the months ahead. 

Put simply, I reckon it could be time to snap up this hidden gem before the rest of the market catches on.

The post There’s still time to buy these high-growth stocks before they take off appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. 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.

The small-cap announced this morning that revenue for the half that ended June 30 rose 14% to £10m from £8.8m while pre-tax profit jumped to £1m from £557,000. The bulk of this growth came from Integrated Computing & Office Networking Ltd, acquired in October 2016. It contributed £419,000 in revenue to the results for the first half. 

Off the back of these impressive figures, management has decided to declare a dividend of 0.2p per share, up a third from last year’s payout giving a dividend yield of 0.4%. 

And it looks as if Elecosoft is on track to continue its impressive performance. In a statement alongside the results, Executive Chairman, John Ketteley said: “Elecosoft delivered a positive performance in the first six months of 2017, with growth in all our geographic regions…We have also made an excellent start to the second half of the year.”

Pushing ahead

Small-cap tech companies like Elecosoft are risky investments, as competition is fierce and plenty of cash is required to grab market share. However, it seems as if this firm has cracked the code. Cash generated from operations during the first half was £2.3m, more than enough to cover capital spending and meet debt obligations. At the end of the period, cash on the balance sheet amounted to £3.5m, compared to debts of around £2.8m. 

As well as a strong balance sheet, this small-cap tech company is projected to grow earnings per share by 29% for 2017 and then 27% for 2018, according to City analysts. These forecasts look impressive and imply that the shares are trading at an attractive 19.7 times forward earnings, a relatively low valuation considering the company’s cash balance and growth potential. 

Under the radar 

James Latham (LSE: LTHM) is another small-cap that flies under the radar of most investors even though shares in the company have gained 223% over the past five years excluding dividends.

Growth at the timber and panel products distributor is expected to slow over the next two years, with analysts predicting little to no earnings growth. Nonetheless, I believe that this slowdown is temporary. James Latham’s management is working hard to turn the business around by cutting costs and improving margins.

Over the past five years, pre-tax profit has almost doubled as management has successfully expanded the business, and I believe that the exec team can continue to produce returns for investors after this period of stagnation. 

The one downside is that the shares are slightly expensive, trading at a forward P/E of 16.7 even with no growth expected during the next two years. Still, the dividend yield of 1.8% looks attractive and is covered more than twice by earnings per share, leaving plenty of room for payout growth. 

The post Two ‘hidden’ small-cap stocks offering growth and value appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?

Rupert Hargreaves owns no share mentioned. 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.