Yet looking at the investment case for SXX, I’m really not surprised by the share price fall. Indeed, I’ve actually warned investors several times in the past about the dangers of investing in the stock, stating in September that it is a “risky investment.”

Jam tomorrow

There’s no doubt that Sirius offers an interesting story. Owning the world’s largest and highest-grade deposit of polyhalite – a key ingredient in fertiliser – the company has clearly captivated the imaginations of many UK investors. However, the problem with Sirius, in my view, is that it’s a classic ‘jam tomorrow’ type of stock. What I mean by this is that profits are still a long, long way off. That adds considerable risk for investors, as, without profits, there’s nothing to really support the share price. Recent news regarding a finance deal (or lack of) has hit the shares hard.

Even after the recent 30%+ share price fall, I’m not tempted to touch the stock. And one reason for this, on top of production and financing risks, is that short interest is quite high at the moment. According to shorttracker.co.uk, over 7% of the company’s shares are being shorted right now which essentially means that a number of hedge funds or sophisticated investors are betting that the stock will keep falling. As I’ve noted in the past, quite often, the shorters get it right. Just looked at what’s happened with highly-shorted stocks such as Carillion and Metro Bank in recent years.

With shorters targeting the stock, I’ll be continuing to steer clear of SXX shares for now.

Better growth stock

One growth stock I do hold in high regard is Gamma Communications (LSE: GAMA). Back in January, I listed the stock as one of my top small-cap stocks for 2019, and since then it has risen nearly 30% – a healthy gain. Over the last three years, it’s performed even better, rising over 120%.

Founded in 2001, Gamma company provides voice, data and mobile services for the business market, and its clients include Pret, British Heart Foundation, and Cathay Pacific. Unlike SXX, Gamma is a highly profitable company (ROE was 26% last year), and profits are rising at a prolific rate.

Just last week, the group released its full-year results for FY2018 and the numbers were excellent. Revenue was up 18% while adjusted EPS rose 31%. Cash generated by operations increased by an impressive 36%. Management also said that it is “positive about the outlook for the business in 2019 and beyond.”

For FY2019, analysts are forecasting EPS of 35.6p per share, which at the current share price places Gamma on a forward P/E of 26.9. I think that’s a fair price to pay for this high-growth company.

The post Sirius Minerals shares are down 30% in six months. Is it time to buy? appeared first on The Twelfth Magpie.

More reading

• A ridiculously-cheap FTSE 250 stock to buy in June?
• What are the best British growth stocks for June?
• Is this FTSE stock really 46% undervalued?

Edward Sheldon has no position in any shares 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.

Today, I want to share with you two of my top small-cap ideas for 2019. In my view, both have the potential to generate big gains for investors. 

K3 Capital

K3 Capital (LSE: K3C) is a leading business sales and brokerage firm that acts for businesses valued between £50,000 and £100m. The £120m market-cap company has recently won a number of industry awards, including first place in the 2017 Thomson Reuters Small-Cap Financial Advisory Review.

It first came to my attention in January last year when the group released an excellent set of interim results and its share price shot up above 400p. Since then, the shares have drifted back to 275p, yet the group has continued to make significant progress (full-year revenue was up 53%), which leads me to believe that the stock could be set for another leg up in the near future if results this year are robust. It’s worth noting that in December, the company advised that it had achieved “significant revenue and profit growth” across its Knightsbridge and KBS Corporate brands, compared to the first half of the prior financial year, which suggests to me that this year’s results could be good.

With the stock currently trading on a trailing P/E ratio of 19.6, I think there’s plenty of upside potential here. And with a dividend that is growing rapidly (the yield is around 4%), I also think K3C could turn out to be a cash cow for investors.

Gamma Communications

The next small-cap stock that I think has strong potential is Gamma Communications (LSE: GAMA). Founded in 2001, the company provides voice, data and mobile services for the business market, and its clients include Pret, British Heart Foundation, and Cathay Pacific.

AIM-listed Gamma first listed there in late 2014 at a price of 187p, and since then, the stock has risen to 800p, valuing the company at £716m. Yet the company is generating strong growth at present, and the shares don’t look particularly expensive, which leads me to believe that there could be more share price gains to come in the near future.

Crunching the numbers, there’s a lot I like about the firm. Revenue and profits are trending up at a rapid rate, and return on capital employed (ROCE) – a key measure of profitability – is high, averaging 27% over the last five years. Furthermore, debt is negligible, meaning the company is less vulnerable in the event of an economic downturn. Half-year numbers, released in September, were excellent, with revenue up 18% and cash generated from operations surging 66%.

With the stock trading on a forward P/E ratio of 22.9, I think the outlook over the medium term is exciting. 

Of course, smaller companies are more volatile than larger ones, meaning the risk of losing money is higher. Even the most promising smaller companies can experience setbacks and see their share prices fall significantly. Therefore, when investing in small-caps, it pays to diversify your money over a number of different picks, in order to lower your risk.

The post 2 of my top small-cap stock tips for 2019 appeared first on The Twelfth Magpie.

More reading

• A ridiculously-cheap FTSE 250 stock to buy in June?
• What are the best British growth stocks for June?
• Is this FTSE stock really 46% undervalued?

Edward Sheldon owns shares in K3 Capital. 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.

Irrational exuberance?

Although the directors remain optimistic about the outlook, we’re not yet seeing the robust revenue and profit advances that are needed to sustain a powerful uptrend in the shares. The reported 4% increase in revenue and more than 50% plunge in post-tax earnings don’t cut it. And there’s no solace in the firm’s recent record on cash generation from operations, which is pedestrian at best. I reckon we saw a bit of irrational exuberance from investors who drove the shares up last year. This year, we are seeing the shorters out in force.

I wouldn’t buy shares in IQE right now, but I’m interested in what has been a fantastic performance on the stock market from technology-based communications services provider Gamma Communications (LSE: GAMA). Over the last three years the stock is up more than 200%, driven by decent operational progress fuelling rising revenue, earnings and cash flow. During that period the valuation has risen to reflect the resilience of the firm’s emerging growth profile and that’s enhanced the uptrend in the shares. Which just goes to show what can happen when a growth strategy clicks and shows in the financial results. That’s what IQE is missing.

Trading very well indeed

Today’s half-year figures from Gamma Communications continue the good news. Revenue increased a little over 18% compared to the equivalent period a year ago, cash from operations shot up a mighty 66% or so, and adjusted earnings per share moved almost 29% higher. The directors expressed their confidence in the outlook by pushing up the interim dividend nearly 11%. This is what we want, and the share price is up more than 6% today, as I write.

The firm describes itself as a “rapidly growing, technology based, provider of communications services to the business market” and uses its own intellectual property to design and provide services such as Cloud PBX, Inbound Call Control and SIP Trunking, which meet the “increasingly complex” voice, data and mobility requirements of businesses. On top of that, Gamma provides business-grade mobile and data services and has a “substantial” voice service capability.  Much of the firm’s financial success has been driven by monthly repeating revenues, which leads to attractive and stable incoming cash flow.

Looking forward, the directors are “enthusiastic” about the outlook for the rest of 2018 and beyond and growth remains on the agenda. New product launches and ongoing development activity look set to keep the company moving forward and City analysts following the firm predict double-digit advances in earnings for 2018 and 2019 in the low- to mid-teens. I think the firm’s ongoing growth prospects make the stock well worth your research time right now.

The post Forget IQE, I’d pile into this high-flying growth company right now appeared first on The Twelfth Magpie.

More reading

• A ridiculously-cheap FTSE 250 stock to buy in June?
• What are the best British growth stocks for June?
• Is this FTSE stock really 46% undervalued?

Kevin Godbold has no position in any of the shares 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 company’s sales and profits performance during January-June were certainly impressive, as was its decision to light a fire under the half-time dividend. And the AIM-quoted firm was at it again on Tuesday, its latest trading statement showing that demand for its product suite continues to ignite.

Make the connection

Gamma, which provides communications services to British business, declared that adjusted EBITDA for the full fiscal year is likely to beat market expectations. The company said that the likely beat “reflects a strong demand in the business market for Gamma’s portfolio of products,” adding that growth has been strong in all of its non-traditional products.

The Newbury-based business said that its SIP Trunking and Cloud PBX products “continued to grow ahead of the market,” while the past investment it has made in its broadband and ethernet products helped drive volumes here too. Moreover, Gamma also saw volumes across its mobile propositions growing last year as well.

To put the cherry on the cake, Gamma advised that its balance sheet has continued to strengthen, with its closing net cash balance clocking in at £31.6m versus £28.2m a year earlier. This clearly bodes well for further R&D investment as well as additional dividend growth (the firm hiked the interim dividend 12% back in September).

City brokers had been expecting earnings to have swelled 3% in 2017 prior to today, but this is on course for an upward revision following today’s update. And improving demand across the business is likely to see the predicted profits growth of 7% this year and 8% in 2019 get positive amendments too.

A forward P/E ratio of 28.5 times may be toppy on paper, but I reckon this is fair value given Gamma’s exceptional momentum.

Forecourt fave

I believe Applegreen (LSE: APGN) is another share those seeking strong and sustained profits growth need to zero in on today.

The petrol station retailer is already the biggest motorway service area operator in its home territory of Ireland, its focus on offering super-low fuel prices proving successful in drawing motorists through its store doors.

This success at home has seen Applegreen move its crosshairs overseas in the hunt for long-term earnings expansion. Indeed, the business has identified Britain and the US as hot growth markets, and it is rapidly building its footprint in these destinations through targeted M&A.

City analysts are therefore expecting earnings at Applegreen to keep growing at double-digit percentages — the AIM-listed business is expected to follow a predicted 17% profits advance in 2017 with a 13% rise in the present period. And in 2019 analysts expect the bottom line to swell by an extra 17%.

Now it could, like Gamma, be considered a little expensive for some, the firm rocking up on a prospective P/E ratio of 21.1 times. But this premium paper valuation is fully warranted given the brilliant profits potential of the retailer’s aggressive expansion strategy.

The post 2 growth stocks you could regret not buying appeared first on The Twelfth Magpie.

More reading

• A ridiculously-cheap FTSE 250 stock to buy in June?
• What are the best British growth stocks for June?
• Is this FTSE stock really 46% undervalued?

Royston Wild has no position in any of the shares 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.

Business Description

Founded in 2001, it is a provider of cloud communications services. The company provides voice, data and mobile services for the business market, and clients include Pret, Itsu and Cathay Pacific. Gamma listed on the AIM market in late 2014 at a price of 187p, and the shares have risen almost 250% in just under three years. However, I think there could be more to come.

Revenue & earnings

The first thing that appeals to me is the company’s financials. Revenue has increased from £131.4m in FY2011 to £213.5m last year, a compound annual growth rate (CAGR) of 10.2%, and adjusted earnings per share since the company listed have risen from 15p in FY2014 to 21.1p last year.

Gamma released its FY2017 half-year report this morning, and unveiled another solid set of results. Revenue for the half year climbed 9.8% to £115m, profit before tax increased 17.9% to £12.5m, and adjusted earnings per share rose 14.9% to 11.6p.

Cash flow

Gamma also appears to be generating plenty of cash flow. The company generated operating cash flow of £26.5m for FY2016, and had a cash balance of £28.2m at year end. Today’s half-year results reported adjusted net operating cash flow of £15.3m, up 10.9% on last year.

Dividend

The strong levels of cash flow have enabled the company to pay a dividend to its shareholders every year since listing. Small-cap stocks aren’t usually associated with dividend payments, however, if a smaller company does pay a dividend, I see this as a huge plus.

A dividend indicates to me that not only is the company generating real cash flow, but also that management is confident that the company is in sufficiently good health to return cash to shareholders. It’s also a sign that management values the shareholders, and is willing to reward them with a share of the profits.

While Gamma’s dividend yield is not high at 1.1%, the payout has risen from 3.95p per share in FY2014 to 7.5p per share last year, and City analysts expect further growth of 10% for this year. The interim dividend was increased by a healthy 12% today, from 2.5p to 2.8p.

Valuation

Analysts forecast FY2017 earnings of 23.7p, which, at the current share price of 669p, places the stock on a forward P/E ratio of 28.3.

While no bargain, that level of P/E suggests to me that investors are willing to pay a premium price for a high-quality company, and I see that as a good thing.

Companies that trade cheaply are often cheap for a reason (think of Telit Communications) and companies that trade at eye-wateringly high valuations (like IQE) leave little margin for error. However, a P/E of 20-30 indicates to me that the market is aware that the company offers growth potential, without a level of irrational exuberance attached to the stock.

Lastly, a glance at the chart shows that the stock is clearly in an uptrend. And as they often say in investment circles, “the trend is your friend.”

The post 5 reasons this could be the perfect small-cap stock appeared first on The Twelfth Magpie.

More reading

• A ridiculously-cheap FTSE 250 stock to buy in June?
• What are the best British growth stocks for June?
• Is this FTSE stock really 46% undervalued?

Edward Sheldon has no position in any of the shares 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.

Where are the emperor’s clothes?

Vodafone paid for last year’s dividend by taking on more debt. The firm has good cash flow, but invests most of it to try to stay ahead of the game. Mobile communications is a competitive business, and the firm’s growth depends on throwing money at infrastructure and new initiatives to keep up with technological advances and changing customer expectations.

Last year, Vodafone declared its free cash flow to be £1.1 billion. The dividend payout that year, though, came to just over £2.9 billion. Despite all the cash the firm generated through operations, the dividend and capital expenditure to grow the business led to an £8.5 billion shortfall financed by debt. Net borrowings ended the year at £22.3 billion — around 11 times that year’s operating profit. Free cash flow was a chunkier £4.4 billion the year before, and the directors expect capital-intensity to reduce going forward, but the figures show how the firm is ploughing funds back into the business. Those holding the shares now must hope that investment will pay off with bigger earnings later.

The shares are down 19% from highs achieved in the Spring. They need to be, and not just because it’s clear that Liberty Global won’t be bidding for the company. Vodafone’s valuation seems too high. I don’t feel it should be necessary to look so hard for justification of the current share price. The forward price-to-earnings ratio (PER) runs at just over 33 for year to March 2017, yet City analysts expect earnings to grow just 19%, and those earnings will fail to cover the dividend payment by around 50%, making the 5.7% yield seem like an empty box, a box that free cash flow could find hard to fill. There’s a lot of expectation for growth built-in here, so I’m avoiding, in case it doesn’t work out.

A well-defended trading niche

It’s not easy, or cheap, for a competitor to launch a satellite so that it can compete with the services provided by Inmarsat. There are high barriers to entry into the sector and Inmarsat enjoys a well-defended trading niche.

The firm started in 1979 to enable ships to stay in constant touch with shore, or to call for help in an emergency, no matter how far out to sea. Today, the company serves many sectors – typically, businesses and organisations that need to communicate where terrestrial telecom networks prove unreliable or unavailable.

Inmarsat’s tasty economics drive a high valuation, perhaps justified by the defensive, cash-generating nature of the business. Recent market turmoil hardly touched the shares, and the firm’s forward PER runs at 28 for 2016, with City analysts expecting a 21% uplift in earnings that year. There’s a 3.6% forward dividend yield on offer with the payout covered once by expected earnings. Inmarsat’s defensive credentials appeal to me, and I’m far more likely to take a chance on the firm’s shares than I am with Vodafone’s.

One to watch?

With its market capitalisation of £294 million, AIM company Gamma Communications is the smallest company featured. The firm is a technology-based provider of communications services to the UK business market. Gamma aims to meet the increasingly complex voice, data and mobility requirements of businesses. The firm’s offering includes cloud PBX, inbound call control services, SIP trunking, business-grade broadband, ethernet, mobile and data services.

More than 80% of Gamma’s revenues arrive via a network of around 780 channel partners. The remaining revenue comes via direct sales into specific market sectors. Organic growth since 2006 has been driven partly by repeat revenues, the firm reckons.

The shares are tearing upwards. The forward PER sits at just under 19, and there’s a forward dividend yield running at 2% or so, with the payout covered more than twice by expected future earnings. This is one to watch, I think, and could be attractive if the shares pull back from the current 358p.

The post Is Now The Time To Invest In Vodafone Group plc, Inmarsat plc And Gamma Communications plc? appeared first on The Twelfth Magpie.

More reading

• Here are 2 FTSE shares I’m excited about this July — and 1 I’m avoiding
• A ridiculously-cheap FTSE 250 stock to buy in June?
• What are the best British growth stocks for June?
• Which will reach £2 first, Lloyds or Vodafone shares?
• 3 value stocks under £3 to consider in June

Kevin Godbold has no position in any shares mentioned. 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.

Certainly, expectations for China have been revised down, but, realistically, the world’s second-largest economy was never going to continue growing at such a high rate without the odd bump in the road. And, with the UK, US and European economies showing signs of further improvement, the long term outlook for shares seems to be rather positive.

This, then, is good news for communications services provider, Gamma Communications (LSE: GAMA). It has today reported an increase in its customer base during the first half of the year, with revenue rising from £84m in the first half of last year to £92m in the same period of the current year. And, with major new contracts being won and profit rising to £7.6m on a pretax basis, the market appears to be upbeat on the company’s prospects, with its shares rising by as much as 7% today.

However, Gamma appears to be somewhat overpriced, with the company having a price to earnings (P/E) ratio of 18.9 even though its bottom line is forecast to rise by just 4% next year. This means that, while the company’s performance is upbeat, its share price may already fully reflect its medium term potential.

Meanwhile, Fenner’s (LSE: FENR) trading update released today prompted a relief rally in the engineering company’s shares. That’s because the reinforced polymer technology specialist confirmed that it is on-track to meet full-year expectations, which is positive news following a profit warning earlier in the year.

Certainly, the year’s results are not due to be pretty, with net profit expected to fall by 34%. And, looking ahead to next year, a further fall of 21% is being anticipated. But, with a forward P/E ratio which takes both of these falls into account of just 14.1, Fenner appears to offer a wide margin of safety, as well as a superb yield of 6.8%.

Centrica (LSE: CNA) is another company that is enduring a challenging period. A change in management team earlier this year prompted a 30% cut in dividends and a refreshed strategy which, while potentially positive in the long run, may cause investor sentiment to come under pressure in the short run.

However, Centrica’s new strategy of focusing on becoming a pure play energy supplier seems to be a logical one. It has decided that it will never be a global oil and gas player, and so will seek to sell numerous assets within this space over the next couple of years. This could prove to be a hit or miss move depending on the price of oil, but what is certainly a sound change is for Centrica to become more efficient. In fact, it is targeting £750m of cost savings per year over the next five years which should have a positive impact on its bottom line. For this reason, and a low P/E ratio of 13.2, it appears to be worth buying.

Clearly, the UK quad play market (broadband, mobile, landline and pay-tv from one provider) is becoming more competitive but, looking ahead, Sky (LSE: SKY) is expected to perform relatively well. For example, its bottom line is forecast to rise by 14% in the current year and this translates into a price to earnings growth (PEG) ratio of just 1.2. And, with Sky continuing to differentiate its content via unique channels and more individual content versus its rivals, it could retain its competitive advantage and maintain current margin levels. So, while not a dirt cheap stock, it appears to be worth buying right now.

The post Gamma Communications PLC, Fenner plc, Centrica PLC And Sky PLC: 4 Bargain Basement Stocks? appeared first on The Twelfth Magpie.

More reading

• A ridiculously-cheap FTSE 250 stock to buy in June?
• What are the best British growth stocks for June?
• Is this FTSE stock really 46% undervalued?

Peter Stephens owns shares of Centrica. The Motley Fool UK has recommended Centrica and Sky. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Challenging Bottom Lines

In recent years, Vodafone has struggled to generate impressive financial performance. Part of the reason for that has been external factors, with a troublesome Eurozone doing little to help a business that remains very much European-focused. However, Vodafone has also made life much more difficult for itself with the sale of its stake in the Verizon Wireless joint venture which, while providing its investors with a tidy lump sum, reduced Vodafone’s regional diversity and removed the most profitable part of the business. As such, Vodafone’s poor net profit figures in recent years appear to be at least partly of its own making.

However, things are set to change for Vodafone. For example, in the current year, it is expected to deliver a small increase in earnings, followed by growth of 15% next year. Clearly, this is causing investor sentiment to improve and, looking ahead, Vodafone’s share price could continue to move upwards.

Meanwhile, Avanti and Gamma continue to offer rather downbeat prospects. Certainly, Gamma is expected to remain profitable during the next two years, but its bottom line is forecast to be just 2% higher in 2016 than it was in 2014. This, then, is unlikely to catalyse investor sentiment and lead to continued above-average share price performance.

Similarly, Avanti is due to remain loss-making in each of the next two years and, while the company continues to have upbeat long term prospects, there appears to be little for investors to get excited about in the short to medium term. Certainly, revenue is set to improve and losses are due to fall, but the market may need a black bottom line in order to warrant further strong gains in Avanti’s share price.

Looking Ahead

As well as having superior growth prospects in the next two years, Vodafone continues to be a top notch income stock, too. For example, it currently yields 4.9% which, with interest rates unlikely to move higher over the medium term, could attract investors and cause the company’s shares to be bid up. Meanwhile, Avanti pays no dividend and Gamma yields just 2.1%.

So, while all three stocks have had a great year, Vodafone appears to offer the best growth prospects, highest yield and, additionally, the most stable, robust and consistent performance. As such, it seems to be the one to buy, with its long term future much brighter as a result of an improving operating environment.

The post Are Avanti Communications Group PLC And Gamma Communications PLC Better Buys Than Vodafone Group plc? appeared first on The Twelfth Magpie.

More reading

• Here are 2 FTSE shares I’m excited about this July — and 1 I’m avoiding
• A ridiculously-cheap FTSE 250 stock to buy in June?
• What are the best British growth stocks for June?
• Which will reach £2 first, Lloyds or Vodafone shares?
• 3 value stocks under £3 to consider in June

Peter Stephens has no position in any shares mentioned. 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.