What’s more, many of the companies in the FTSE 100 today are constricted by their size. It’s easier for a tiny business to double its size — and your money — than for a big one.

With that in mind, here are two small-cap growth stocks that I believe could be much better investments than the FTSE 100 today. 

Earnings double 

With a market cap of £261m, Zotefoams (LSE: ZTF) flies under the radar of most investors. The company, which produces cellular material used in a range of industries including packaging, transport, medical and construction, has seen net profit nearly double over the past three years as sales have jumped 43%. 

Analysts had been expecting the company to report an increase in net profit of 38% for 2018, but it now looks as if the group is set to beat this projection. In a trading update published this morning, management said that “full-year revenues and profit before tax are now expected to be slightly ahead of consensus market expectations.” All of the business divisions reported growth in the first nine months of 2018 and it seems that the firm just can’t keep up with demand.

New production facilities are on track to open in the UK and US next year. In 2020, a new facility in Poland is set to open its doors too. Management’s expansion efforts indicate to me that Zotefoams is planning for a significant increase in demand for its products over the next few years, and now could be the time for investors to get on board

The stock is changing hands today at 30 times forward earnings, which is right at the top end of what I would consider acceptable for a growth stock. However, the recent update is enough to convince me that the shares are worth this high price. If profits go on to double again over the next three years, as they have in the last three, investors could be well rewarded.

Attractive margins 

Another small-cap that’s recently caught my eye is Medica (LSE: MGP). What I like about this health-tech business is its robust profit margins. For the past five years, the operating profit margin has averaged 21%. And profits have exploded since 2015. Earnings per share (EPS) jumped 157% in 2016, 42% in 2017 and are set to grow 37% for 2018. 

However, despite the explosive growth, it seems that the rest of the market has not woken up to the opportunity here. Shares in Medica are currently trading at a forward P/E of just 18.3, falling to 15.9 for 2019, which looks too cheap to me. 

Alongside the company’s unaudited half-year results, management confirmed that Medica is on track to hit City growth forecasts for the year, and strong cash generation will mean that by year-end, net debt will be close to zero from £2.5m at the halfway point. I reckon moving to a net cash position will result in acquisitions that could help accelerate EPS growth in the years ahead. There’s also the possibility of higher cash returns for investors. 

The post Ignore the FTSE 100. I believe these growth stocks could be a much better buy 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.

However, there are still a number of companies that could offer significant upside potential. Certainly it may be more difficult finding them in today’s bull market, but here are two stocks that could be worth a closer look given their outlooks and valuations.

Improving performance

Reporting on Monday was teleradiology specialist Medica Group (LSE: MGP). It was able to deliver an 18.2% revenue rise during the year, with its NightHawk out-of-hours reporting service delivering sales growth of 24.1%. There was also progress in its Routine Cross Sectional division, where revenue was up 19.4%, while Specialist services and Independent revenue was 18.1% higher than in the previous year.

During the year, the company was able to deliver increasingly complex services while also increasing the number of radiologists under contract by 20%. With demand for its services increasing, it continues to have a relatively positive outlook for the long run. So far in 2018, the company is trading in line with expectations, with double-digit revenue growth anticipated.

In the present year, Medica is expected to report an 11% rise in earnings, followed by further growth of 19% next year. The company trades on a price-to-earnings growth (PEG) ratio of just 0.9, which suggests that it offers good value for money. As such, and with demand for healthcare services set to increase over time due to changing demographics, the prospects for the business appear to be impressive.

Low valuation

Also operating within the health care and equipment services sector is NMC Health (LSE: NMC). The company has an excellent track record of growth with its bottom line increasing in every one of the last five years. During that time, earnings have risen by 25% per annum. This suggests that the business has a high and consistent growth rate that could continue over the medium term.

Looking ahead, NMC is expected to report a 43% rise in its bottom line in the current year, followed by growth of 23% next year. Despite such a high rate of growth, which could continue over the long run, the stock trades on a PEG ratio of just 1.2. This suggests that the company’s share price could generate high returns in future years.

At the same time, risks seem to be relatively low. The sector in which it operates is generally consistent and defensive, which means that it could be worthy of a premium valuation over time. As such, from a risk/reward perspective, NMC could be worth buying now for the long run – especially since demand for healthcare products and services is due to increase.

The post 2 growth stocks that look absurdly cheap right now appeared first on The Twelfth Magpie.

More reading

• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Peter Stephens 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.

Profits soar

Over the years, the Hastings-based healthcare services firm has grown to become the UK’s leading independent provider of radiology reporting, delivering in excess of 1.3m reports a year to NHS hospitals, private hospital groups and diagnostic imaging businesses.

In its first ever interim results as a public company, the group revealed continued strong growth, delivering a 17% rise in revenues to £15.7m during the half year to June. Adjusted pre-tax profits soared by an even more impressive 42% to £3.8m, compared to £2.7m for the same period a year earlier.

Management responded with a proposed first interim dividend of 0.55p per share, payable on 27 October to shareholders registered on 29 September.

Cyber-attacks

It’s worth noting the highly-publicised cyber-attacks in May, which caused major disruption to NHS systems, did not affect Medica’s own systems and IT infrastructure. And the company was quick to work closely with affected clients to minimise patient impact and to ensure that it could respond to referrals as soon as these clients were back online.

Despite the strong results, Medica’s share price had slumped by almost 6% by mid-afternoon, and I believe this was down to the market’s elevated expectations. Trading on a 2017 price-to-earnings multiple of 31 suggests to me that the market was perhaps hoping for even more impressive figures than those announced this morning.

Nevertheless, I believe a strong brand and growing customer base leaves the group well positioned for further long-term growth.

A safer alternative?

There’s no doubt that small-cap firms like Medica have the potential to deliver huge shareholder gains over the long term, but investing in these types of businesses can also involve taking on significantly higher levels of risk than with their larger, more-established, counterparts.

For those totally averse to such risks, I believe FTSE 100-listed Shire plc (LSE: SHP) could provide a very suitable alternative. The Dublin-based speciality pharmaceuticals business may not be as well known as blue-chip peers GlaxoSmithKline and AstraZeneca, but at £35.5bn is one of the top pharmaceutical and biotechnology companies in the world, with a leading position in the treatment of rare diseases.

A rare opportunity

In recent years Shire has further expanded and diversified both its product portfolio and geographical reach, yet still remains strong in the attention deficit hyperactivity disorder (ADHD) market for which it is best known.

The shares are currently trading on a very attractive valuation at just 10 times forecast earnings for 2017, giving investors a rare opportunity to buy this quality business at a knockdown price.

The post This small-cap growth stock could be a millionaire-maker appeared first on The Twelfth Magpie.

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• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca and Shire. 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.

Improving performance

Reporting on Wednesday was healthcare company Medica Group (LSE: MGP). It provides teleradiology services and reported that it has continued to perform well in the first half of the year. Fortunately, the cyber-attacks in May did not impact upon its own systems and IT infrastructure. Furthermore, the company was able to quickly work with affected clients to minimise the impact on patients.

Medica has said that its recruitment of radiologists has continued to be strong, and it expects its results for the full year to be in line with expectations. For the year, it is forecast to record a rise in earnings of 113%. This is expected to be followed with further growth of 22% next year, both of which could lead to improving investor sentiment over the medium term.

Despite its relatively impressive outlook, the company trades on a price-to-earnings growth (PEG) ratio of only 1.2. This suggests that upside potential is significant. Although the company is relatively small and operates in a niche area, it seems to have a sound strategy through which to deliver improving share price performance. Therefore, within a diversified portfolio it could be an enticing buy.

Balanced potential

Also offering a bright future for its investors is public relations and integrated healthcare communications specialist Huntsworth (LSE: HNT). As with Medica Group, it has impressive future growth potential. It is forecast to grow its bottom line by 28% in the current year, followed by additional growth of 10% next year. This comes after a period of disappointment for the business which saw its earnings fall by 58% over a three-year period. However, having returned to positive growth last year, it seems to be on track to deliver more growth in future years.

With Huntsworth trading on a PEG ratio of 1.2, it seems to offer growth at a reasonable price. Alongside its value and growth appeal, it is also becoming a realistic proposition for income investors.

For example, even after halving its dividend in 2014, the company continues to yield an inflation-beating 3%. This is despite the company paying out only 41% of profit as a dividend. This suggests that rapid dividend growth could lie ahead, and even that a rise in shareholder payouts could exceed the company’s earnings growth rate without hurting its reinvestment potential.

As with Medica Group, Huntsworth is a relatively small entity and may therefore come with higher risk than many stocks. However, with a mix of income, growth and value appeal, it could post high share price gains in the long run.

The post 2 undervalued growth stocks you’ve never heard of appeared first on The Twelfth Magpie.

More reading

• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Peter Stephens 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.