Of course, there are no guarantees when it comes to investing. Here, however, are three minnows that I suspect will have rewarded investors by the time they’re ready to swap the office for the beach.

Future ISA star

As I predicted almost two months ago, online instrument supplier Gear4music (LSE: G4M) released some cracking numbers this week. The business has benefitted hugely from the lockdown with more people than ever learning and practicing music to pass the time. 

Naturally, the share price has reacted positively to news that profits have exceeded management expectations. Whether this momentum will remain near-term is hard to say. The lifting of restrictions could mean earnings have peaked for a while. 

On the other hand, the likelihood that many independent retailers on the UK’s high street will find the going tough could play into the £90m-cap’s hands. Indeed, CEO Andrew Wass has said Gear4music is “confident of continued financial improvements during FY21.“

Regardless of what happens in the rest of 2020, I remain confident this stock could prove a real winner for long-term investors.

Move fast

Another small-cap stock that could reward patient ISA investors is software company Oxford Metrics (LSE: OMG).

Already operating in over 70 countries, Oxford assists firms in measuring and capturing motion. It does this via its infrastructure management-focused Yotta division or movement analysis Vicon business.

What I particularly like about this company is the diversity of its clients. These range from highways authorities needing help to manage road networks to film studios wanting support in creating visual effects. 

Perhaps unsurprisingly, Oxford’s share price hasn’t really recovered from March’s sell-off. It’s still 33% below the all-time high hit back in February.

While recent trading is unlikely to be good, I sense now might be an opportunity for ISA holders to acquire a slice of the business whose fundamentals have been steadily improving. The balance sheet also shows no signs of distress, boasting net cash of almost £11m.

Expensive…but worth it

Last on my list of small-cap opportunities is US-focused software firm Craneware (LSE: CRW). Its tech is designed to highlight operational and financial risks to hospital managers and how they can make things more efficient.

The thing to realise about Craneware is that its valuation has always been high. Despite the recent market crash, shares still trade on a forecast price-to-earnings (P/E) ratio of 31 for FY 21 (beginning in July).

Before dismissing the company, however, it’s worth mentioning that the five-year average P/E is 36. Moreover, Craneware has consistently shown why it deserves its premium rating. Margins and returns on capital are seriously high. It also dominates its niche and carries very little debt. This all piques my interest, even if the adoption of its new analytics platform is taking longer than expected. 

Craneware’s share price could remain under pressure if we get a second Covid wave/market crash. However, I’m having trouble finding reasons to see why it won’t reward ISA investors over the long term.

The post £3k to invest? I’d buy these small-cap stocks in an ISA to retire in comfort 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 Craneware. 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 firm delivered its half-year results this morning and, as I write, the stock is heading towards being 10% down on the news.

Great figures

Before even looking at the results, I reckon it’s fair enough that the share is being marked down just for being another with ‘Oxford’ in its name. How are we poor investors, and all the potential customers, supposed to tell one company from another? What some of these outfits need more than anything else is a lesson in branding, in my view.

There’s more leverage to be had than by simply naming an enterprise after the place it was started – especially when so many businesses come from a big city such as Oxford! Richard Branson, for example, found his inspiration from other sources when naming his companies, and things worked out well for him.

Yet despite today’s plunge in the shares, the figures are rather good. In the six months to 31 March, revenue rose almost 13% compared to the equivalent period a year earlier, and earnings per share shot up just over 48%. The success translated into a rising cash balance, with net cash lifting almost 19% to a smidgeon below £11m. I think a building cash balance is undeniable evidence that an enterprise is succeeding.

A positive outlook

Chief executive Nick Bolton said in the report the positive start to the year was driven by the company’s Vicon division, which secured deals with NASA’s Jet Propulsion Lab and Square Enix. He reckons the outcome helps to consolidate the firm’s position of leadership in the engineering and entertainment markets. 

On top of that, Bolton revealed that the location-based virtual reality market is “really beginning to take off” this year. He reckons the scale of that market “is significant.” The firm’s partners are launching new locations “across multiple geographies,” he says, and the company signed an“exciting” new partnership agreement in the period with Sandbox VR.

Looking forward to the second half of the year, Bolton said the pipeline of sales for the Yotta division and Vicon “is strong,” which underpins his confidence the firm will perform“in line with market expectations for the full year.” City analysts following the firm have got estimates pencilled in for a percentage increase in earnings in the mid-to-high teens. For the following trading year to September 2020, the estimates I’ve seen are north of 30%, so expectations are high.

A fair valuation?

Indeed, Oxford Metrics is trading and expanding well and it operates in a profitable sector that I’m keen on. So why the weakness in the shares today? I think it is because high expectations lead to a high valuation, and any slight undershoot of some investors’ expectations could cause some of the froth to fly off the valuation.

However, today’s share price close to 90p throws up a forward-looking earnings multiple close to 18. Given the vibrancy of the enterprise, I think that’s fair and see the stock as ‘attractive’.

The post Why I’d pile into this plunging share price today appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any 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.

Unfortunately this doesn’t guarantee that they will be profitable for shareholders. This is why I’d only buy one of these stocks today.

Within sight of success?

Australian firm Seeing Machines (LSE: SEE) built its reputation by developing driver monitoring systems for giant mining trucks. These systems were successful at detecting drowsy drivers and reducing crashes due to fatigue, but the mining market is relatively small and specialised.

The company needed a large-scale move into the on-road truck fleet market to achieve profitable scale, and this is taking time. One of the problems facing the firm is that the costs of developing its technology appear to be quite high.

Today’s interim results provide a taste of the problem. Although revenue for the six months to 31 December rose by 267% to A$14.7m, the group’s operating costs rose by 55% to A$23m. As a result, losses for the period increased from $14.1m to A$16.7m.

The picture isn’t clear to me

In fairness, some of this increased loss was the result of an inventory build-up of its Guardian fleet product ahead of deliveries during the early part of 2018. Seeing Machines does expect a stronger financial performance during the second half of the year.

But the firm has confirmed that its full-year performance is expected to be in line with market expectations, which are for a loss of A$29.7m.

Why I’d sell

This stock has risen by about 65% since October, when management issued a bullish statement suggesting sales could rise from A$13.6m in 2016/17 to about $80m in 2018/19. Strong fleet and automotive revenues are expected to drive this growth.

On the strength of this, the firm raised £35m (A$62m) in a share placing in December. The group is now well funded, but there’s no guarantee it will have enough cash to reach profitability.

Indeed, it’s not clear to me when Seeing Machines will become profitable. That’s why I’d use the current price strength as an opportunity to sell.

Profitable analytics

One high-tech stock I am keen on is Oxford Metrics (LSE: OMG). This software group makes “analytics software for motion measurement and infrastructure asset management”. Activities include road management, medical analysis and Hollywood special effects.

This is a profitable business. Sales rose by 10.7% to £29.2m last year, generating a pre-tax profit of £3.7m. Although this was lower than the £5.1m figure reported one year earlier, this was largely due to investment in the business.

The group generated £2.3m of free cash flow last year and paid dividends of £1.2m, resulting in an increased year-end net cash balance of £9.8m.

Why I’d still buy

These shares have risen since I bought them for my portfolio. They now trade on a forecast P/E of 20 for the current year.

However, earnings per share are expected to rise by a hefty 37% in 2018/19, as recent investment bears fruit. This gives the stock a 2019 forecast P/E of 15, which I think is affordable for a growth business.

In the meantime, there’s a useful 2.1% yield, backed by a substantial cash pile. I continue to rate this stock as a buy.

The post One growth stock that could double, and one I’d sell today appeared first on The Twelfth Magpie.

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Roland Head owns shares of Oxford Metrics. 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 firm provides analytics software for motion measurement and infrastructure asset management to clients in more than 70 countries. Customers include highway authorities managing and maintaining road networks, hospitals and clinicians, plus Hollywood studios who use the software to create visual effects.

A five-year plan for growth

Today’s full-year results continue the trend in the finances. Revenue from continuing operations at constant currency rates rose 7.6% compared to a year ago and adjusted profit before tax dropped almost 24%. The directors reckon earnings are down because of planned investment in the Yotta division, which provides cloud-based infrastructure asset management software to central and local government agencies and other infrastructure owners.

Judging by the muted share price reaction this morning, I think investors are happy to back the firm’s five-year growth plan. I think we should expect such investment at this stage, one year into the plan. Ongoing top-line growth suggests the potential for enhanced profits down the road, and chief executive Nick Bolton seems pleased with this year’s outcome saying “annualised Recurring Revenues, a key metric for our five-year plan, has improved 22%.”

Oxford Metrics is reshaping its business for better growth, and I’m encouraged by the directors’ decision to raise the dividend by 20% this year in support of the firm’s progressive dividend policy. The outlook is positive, and I think the full ongoing growth potential of this company looks set to emerge over the next few years. It could prove timely to research the investment opportunity right now.

Finance in place

Meanwhile, Motif Bio (LSE: MTFB), the clinical-stage biopharmaceutical company, has seen its share price ease around 19% since I last looked at the firm on 4 October. Back then the share price shot up on the news of a positive top-line result from a global Phase 3 clinical trial called REVIVE-2. This focused on the firm’s investigational drug candidate iclaprim for patients with Acute Bacterial Skin and Skin Structure Infections (ABSSSI). That successful trial clears the way for the firm to submit a new drug application to the US Food and Drug Administration (FDA) in first quarter of 2018. 

Maybe Motif Bio is on the cusp of commercialising what could go on to be a big-earning drug. In the meantime, the firm lacks meaningful income, and I said in October that its finances looked precarious. But news arrived during November that the company has agreed a US $20m debt financing arrangement with Hercules Capital, Inc. a firm specialising in customised debt financing for companies in life sciences and technology-related markets.

Motif Bio plans to use the funds to finance pre-commercialisation and other activities leading to the anticipated US launch of iclaprim during 2019.  I reckon this is an encouraging development because it removes immediate worries over money and shows that Hercules sees potential for iclaprim. To me, the case for an investment in Motif Bio has improved and the fact that the share price is lower is a bonus.

The post One ‘secret’ growth stock I’d buy alongside Motif Bio plc appeared first on The Twelfth Magpie.

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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 first of these is data analytics software group Oxford Metrics (LSE: OMG). The firm’s shares rose by 7% on Thursday, after it announced that adjusted pre-tax profit for the year ended 30 September is expected to be “slightly ahead of market expectations”.

Broker forecasts previously were for earnings of 2.3p per share for the year. In my view, the wording of Thursday’s update suggests that the final figure could be 5%-10% higher than this — perhaps 2.4p-2.5p.

That would still leave the shares looking fairly pricey, on around 25 times forecast earnings. But the company is expected to deliver substantial further gains in 2018. Recent forecasts suggest that earnings per share could rise by as much as 50% to 3.5p next year. That would give the shares a more reasonable P/E of 18.

Just another expensive tech stock?

Valuations for some tech stocks have become pretty steep in recent months. But in my view, Oxford Metrics’ fundamental quality suggests its valuation might be justified.

The first point to note is that it’s highly profitable and generates plenty of cash. The group’s operating margin was 18% last year, while return on capital employed (ROCE) — a key measure of profitability — was about 16%. Both figures are well above average.

Today’s trading update also suggests that Oxford Metrics has continued to generate strong free cash flow this year. Net cash for the year just ended was £9.8m, up from £8.3m the previous year.

High profitability and strong cash generation provide good support for the group’s dividend. This payout has grown by an average of 27% since 2011, and now offers a forecast yield of 1.7%. I plan to continue holding my shares following today’s gains.

A high-yield alternative

If you’re looking for small-cap stocks with a high dividend yield, you might want to consider spread-betting and stockbroking firm CMC Markets (LSE: CMCX). Its shares halved in value last year, when the FSA announced plans to limit the amount of leverage that could be offered to retail customers.

We don’t yet know what form these new rules will take. But in its latest trading statement, CMC emphasised its focus “high-value, experienced clients”, whose activity may be less affected by any changes to the rules. The group is also continuing its expansion into stockbroking through a partnership with one of Australia’s largest banks.

According to a recent trading statement, half-year profits are expected to be “significantly higher” than for the same period last year. The market has certainly regained its confidence in the business, as the shares have now risen by more than 50% from last year’s lows.

Is this view correct? It’s too soon to say. In the firm’s H1 trading statement, management warned that it “remains cautious about the future outlook given the ongoing regulatory uncertainty”.

However, the shares now trade on a 2017/18 forecast P/E of 12.5, with a prospective yield of 4.5%. In my view this is probably cheap enough to discount the risk from regulatory changes. I’d continue to hold.

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Roland Head owns shares of Oxford Metrics. 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.

Strong performance

Reporting on Tuesday was international software company, Oxford Metrics (LSE: OMG). It announced a rise in revenue of 17% for the first half of the current year, which represents record performance. Its adjusted profit before tax was £1.6m, which was in line with expectations after focused investments. With cash flow generation being strong and the company receiving the remainder of the 2d3 consideration, its cash balance increased to £11.1m from £5.8m a year earlier.

Oxford Metrics seems to be making encouraging progress with its five-year plan. It is on target with its goal of doubling profits and tripling recurring revenues by 2021, with the annual value of recurring revenues moving 13% higher in the first half of the year. With the launch of Yotta’s new software platform, Alloy, and the opportunity to strengthen and protect Vicon, the company appears to have a clear growth strategy for the medium term.

Looking ahead to next year, Oxford Metrics is forecast to record a rise in earnings of 57%. This puts its shares on a price-to-earnings growth (PEG) ratio of only 0.3. While still a relatively small company which is therefore relatively risky, its potential rewards could prove to be significant.

Improving prospects

Also offering upbeat growth potential is IG Design (LSE: IGR). The gift packaging and greetings card specialist is forecast to report a rise in its bottom line of 41% this year, followed by additional growth of 11% next year. This follows four consecutive years of profit growth, which suggests the company has a relatively resilient business model. Given the uncertain outlook for the UK economy, this could prove to be a positive for the company’s investors.

While it has a relatively bright outlook, IG Design continues to trade on a fairly enticing valuation. For example, it has a PEG ratio of 1.7. Given its consistent track record of profit growth, this seems to be a relatively appealing price to pay. It suggests that further share price growth could be ahead after the company’s 42% rise since the start of the year.

As well as growth prospects, IG Design could also become a strong income play. It may have a dividend yield of only 1.2% at the present time, but its shareholder payouts account for only 23% of profit. This indicates that rapid dividend growth could lie ahead – especially when the company’s forecast profit growth rate is factored in. Therefore, from an income, value and growth perspective, IG Design could be a shrewd buy.

The post Two super growth stocks I’d buy today appeared first on The Twelfth Magpie.

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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.