Today, I’m going to explain why I’ve recently jettisoned two of the worst performing stocks from my portfolio — advanced wafer products supplier IQE (LSE: IQE) and sports nutrition company Science in Sport (LSE: SIS).

Heavy faller

There’s simply no hiding from the fact that shares in Cardiff-based IQE are still way down on the highs reached back in November 2017. Sixty percent down, to be precise.

Last week’s full-year results, while never likely to be good, didn’t make for pleasant reading.

Revenue may have increased very slightly (1.1%) over 2018 to £156.3m but pre-tax profit dropped 43% to £14m following what CEO Dr Drew Nelson described as “a very difficult and challenging year“. 

Ordinarily, I wouldn’t sell a holding based on a fairly short period of underperformance. With IQE, though, I can’t see things improving any time soon.

Perhaps my biggest worry is the dwindling amount of cash on the balance sheet. Net funds fell from £45.6m to £20.8m over 2018 — a 54.4% decrease — while capital investment increased almost 22% from £34.8m to £42.4m. 

Some may argue that IQE’s growth credentials fully justify this heavy spending. That may be true but I don’t see a halt to the latter any time soon.

There’s another nagging concern. Right now, IQE is still one of the most popular shares on the London Stock Exchange among short sellers (those betting on the share price to fall). Only strugglers like Debenhams and Metro Bank are attracting more attention. The fact that these positions haven’t been closed post results suggests that there could be worse news ahead. 

Of course, short sellers don’t always get things right. Given that they technically have a lot more to lose compared to your typical investor, however, their ongoing bearishness certainly warrants attention.

IQE could end up doing very well (there’s always a chance that I’m exiting at the worst possible time) Nevertheless, I can’t help but think there are less risky destinations for my remaining capital, especially as the shares still trade on 21 times earnings.

And if you’re going to wait for a recovery, there’s an argument that you should at least be compensated for your patience.

Running to stand still

Science in Sport is another portfolio laggard that I’ve dispensed with. This business has been a disappointing (but mercifully small) investment, even if recent trading has been encouraging.

Group revenue jumped 37% to £21.3m in 2018. Gross profit also rose from £9.3m to £12m, supported by a small contribution from the newly-acquired PhD Nutrition brand.

The problem is that the company is still loss-making on an underlying basis. Moreover, these losses are increasing (£2.5m in 2018 compared £1.7m in 2017) as a result of ongoing investment in “brand awareness, e-commerce, and international expansion“. 

The company may be growing at a faster rate than competitors but it’s burning through a lot of money in doing so. The cash pile more than halved over 2018 (from £16.6m to £8m).

Again, if you’re patient enough, this could be a rewarding investment. However, with another equity raise looking likely (although not guaranteed), I’m happy to walk away for the time being and focus on other growth-focused opportunities. 

The post IQE isn’t the only ‘jam tomorrow’ growth stock I’ve just sold 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 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.

Here are just a couple of such businesses — one of which I already have a position in.

In rude health

Know a keen cyclist or someone training for a marathon? If so, it’s likely that they’re already aware of (and possibly use) the products of AIM-listed sports nutrition specialist Science in Sport (LSE: SIS). 

While the share price hasn’t really budged today, there was nothing in this morning’s final results to cause concern to this market minnow’s owners. Quite the opposite.

Revenues rose by a satisfying 28% in 2017 to £15.6m — significantly outpacing forecasts for the sector as a whole for the fifth consecutive year. Positively, 27% of the former (£900,000) came from new products.

In line with the company’s plans to crack markets such as US and Italy, performance overseas was strong and accounted for 28% of all sales in 2017. Online growth was also stellar. No less than 55% of revenue came from its website last year, outperforming management’s own 50% target.

In addition to the above, I’m also encouraged by the brand partnerships developed over the last year with bodies such as British Cycling and USA Triathlon. The recruitment of Olympic champion swimmer Adam Peaty as an ambassador won’t do any harm and nor will the recently signed three-year deal with one of the biggest football clubs in the world — Manchester United.

Possessing a “strong launch pipeline for 2018” and a sizeable cash position of £16.6m (following a placing last November), I continue to believe that Science in Sport has a promising future, even if ongoing investment means that the company emerged from last year with an underlying operating loss of £1.7m.

Record growth

For something completely different, consider laser-guided equipment manufacturer Somero Enterprises (LSE: SOM). Since I became bullish on the company a year ago, the stock has registered a very satisfying 35% gain. How many FTSE 350 companies do you know that have done something similar?

Last week’s expectation-beating full-year results received a favourable reaction from investors and understandably so. Revenue grew 8% to a record $85.6m over 2017, with adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rising by 14% to $28m. 

Like Science in Sport, Somero reported an increased proportion of sales coming from international markets with new products also contributing “meaningfully” to growth.

2018 could prove to be another great year for the small-cap. In addition to commenting on the company getting ever closer to achieving its $90m revenue target set in 2014, CEO Jack Cooney has also highlighted the £216m cap’s desire to exploit “a broad range of opportunities in related products and new markets“. With this in mind, Somero’s forthcoming move into a new leased facility in Chesterfield at some point in the second quarter to “accommodate growth” looks wholly appropriate.

Taking into account the above, its lack of debt (net cash position of $19m), still-fairly reasonable valuation (15 times earnings) and a recent 40% hike to the total dividend, Somero still warrants attention in my view.

The post 2 promising small-cap growth stocks to stash in your ISA appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Science in Sport. 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.

Science in Sport (LSE: SIS) is one that appeared on my radar last year when I took up cycling again after a long break, and how things had changed. Out were baggy ‘Famous Five’ shorts and sausage butties for lunch, and in were lycra and energy gels.

In fact, sports nutrition is becoming big business, and that’s what Science in Sport does. You can see it everywhere after a big sporting event like the Olympics, and sales of all kinds of gels, energy bars, and scientifically formulated hydration products (ie drinks) all soar.

The Tour de France helped, and when I see groups out cycling they’re all wearing team gear and slurping down those horrible gels — I tried one once and I thought it tasted of sick, but I’m not a target customer.

Sports everywhere

There’s the London Marathon too, with competitors trying to squeeze out every last smidgeon of performance they can.

Science in Sport doesn’t make any profit yet and still has losses (albeit narrower losses) pencilled in for the next two years. But on Friday it announced two new deals, a three-year one with USA Triathlon to target growth in the US market, and a partnership with Rock ‘n’ Roll Marathon Series to be the “official supplier of its patented isotonic energy gels at all 30 race series.“

The risks are huge — market cap of only £27m and still in the cash-burn stage — so be very careful if you choose to make an investment. But with the shares at 72p, I’m cautiously optimistic.

Medical prospect

Shares in Circassia Pharmaceuticals (LSE: CIR) crashed in June 2016 when a cat allergy phase III study failed miserably — the candidate immunotherapy treatment did no better than a placebo.

Since then, the company has reinvented itself and now focuses on respiratory diseases, including asthma and COPD. Those are growing problems in the industrialised west, surely offering great potential for anyone coming up with effective treatments.

September’s interim results looked encouraging to me, reporting an increase in revenue of 65%, to £18.3m, with R&D expenditure upped to £27.2m. The latter is particularly exciting as it includes a £14.6m contribution to the firm’s collaboration with sector giant AstraZeneca. Announced in March, the deal secured certain US commercial rights to the COPD treatments Tudorza and Duaklir.

Sales of the firm’s NIOX asthma diagnostic product were up 19% at the halfway stage, with US clinical sales up 39%.

Sufficient cash

With £82.9m in cash at 30 June, there appear to be no liquidity problems at present, but questions over profits remain. There are none forecast for this year and next, though losses per share are forecast to fall sharply, so could we see some in 2019?

At 84p today, the shares have continued down, which is disappointing. And it is another very risk investment, as it doesn’t take much going wrong to destroy a company that’s not yet in profit.

But Neil Woodford has held on to his Circassia shares and clearly still sees something attractive there, and I’m with him. What I really want to see is full-year results for 2017, and the first signs of 2019 forecasts.

The post 2 future growth stocks I’d buy today appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended AstraZeneca. 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.

Overseas markets

The AIM-listed business revealed that total revenues grew from £6.48m to £8.27m during the six months to 30 June, with a particularly strong performance from its e-commerce business. This delivered 87% growth across all markets, and now accounts for 51% of total revenues. International sales growth was also impressive at 55%, with 27% of total revenues coming from overseas markets, compared to 22% for the same period in 2016.

Science in Sport (SiS) develops, manufactures and markets sports nutrition products for professional athletes and sports enthusiasts. SiS products are sold in a range of retail channels, including specialist sport retailers, major grocers, high street retailers and e-commerce websites.

A monster in the making?

The business has been investing heavily in international markets, with major emphasis on building brand awareness and implementing its online customer acquisition and conversion model. The brand is particularly strong in the elite athlete community, with no less than 34 medal-winning athletes or teams using the company’s products at the 2016 Rio Olympics.

Focusing on international expansion and investing in the e-commerce business seems to me the right way to go, and I reckon these key areas of growth might one day transform this small-cap weakling into a fully-fledged FTSE monster.

Health and fitness

No-one can deny that health and fitness is big business these days, and one of the most noticeable trends of modern times has been the increase in gym membership in the UK. Here, low-cost operator The Gym Group (LSE: GYM) is making great inroads into what is undoubtedly a growing market. The group’s disruptive business model allows its members 24/7 access to almost all its sites on a pay-as-you-go basis. That’s right, there’s no contract to sign and membership can just stop and start as required.

Founded just 10 years ago, the Guildford-based group pioneered the low-cost operating model that now boasts 98 gyms in major towns and cities nationwide, and whose membership has swelled to over half a million. The business continues to expand rapidly, and only last week announced its latest acquisition, Lifestyle Fitness, for £20.5m.

Expanding bottom (line)

The group will acquire Lifestyle’s 18 gyms, located mainly in the Midlands and North of England, 10 of which will immediately be converted to The Gym brand, with the remaining eight sites continuing to operate under the Lifestyle Fitness brand, to be converted in due course.

The move is part of the group’s previously stated strategy to identify bolt-on acquisitions as a way of accelerating its rollout, and analysts are expecting the rapidly-expanding estate to boost earnings by almost 30% by the end of next year.

The shares may look expensive at 28 times forecast earnings, but this falls to 24 next year, not too expensive given the rapidly expanding bottom line. Slim waists and fat wallets – now there’s a winning combination!

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Bilaal Mohamed 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.

Science In Sport (LSE: SIS) moved 3% higher on Thursday, and within striking distance of February’s summit around 96p per share, following the release of perky trading numbers.

The protein powder play announced that sales jumped 28% in the six months to June, to £8.27m, with its e-commerce enjoying growth of 78% across all of its markets. The London business also reported growth in all of its retail channels in the period.

Chief executive Steven Moon commented that “we have had a strong start to the year in a difficult market, and have made very good progress, particularly when many of our competitors continue to face growth challenges.”

He celebrated the huge investment Science In Sport has made in international markets as well as in its online proposition, the success of which has been highlighted by today’s terrific results.

And Moon struck a confident tone looking ahead, noting that “we have good momentum and together with our healthy innovation pipeline, we expect to have a strong second half.”

Sprinting on

The City expects it to remain lossmaking for some time yet however, although the bottom line is expected to keep on improving as revenues steadily rise. Losses of 4p per share are predicted for 2017, narrowing from 6.2p last year. And further progress, to 2.1p, is estimated for 2018.

Sports nutrition is clearly big business, as underscored by a report released this week by Mintel which showed that more than a quarter of all Britons now take protein and energy supplements in a bid to acquire ‘the body beautiful.’

And Science In Sport is putting itself in the frame to lasso this surging demand through its huge investment drive. I reckon the fitness giant could be one to watch in the years ahead.

Build a fortune

Grafton Group (LSE: GFTU) is a share that the Square Mile believes should continue to deliver solid earnings growth.

While difficult trading conditions are expected to see profits slow from the double-digit increases of recent years, the FTSE 250 star is expected to keep firing with increases of 3% and 8% in 2017 and 2018 respectively.

As a consequence, Grafton deals on a forward P/E ratio of 14.9 times, roughly in line with the value yardstick of 15 times.

The Dublin firm saw revenues soar 6.2% at constant currencies, or 9% at actual rates, in the six months to June, it advised earlier this month. A strong performance and new branch openings at its Selco arm helping to lift profits in Britain 4% higher.

But Grafton has really put the pedal down on foreign shores. In Ireland, like-for-like turnover soared 10.6% in the first half, the company noting that “the recovery in the residential and commercial new build markets [had] gathered pace.” And in The Netherlands, like-for-like revenues jumped 38.1% thanks to a resilient Dutch economy and a healthy housing market.

The company is not without its share of risk, of course, given the prospect of a sharp cooldown in the UK economy. Indeed, chief executive Gavin Slark commented that “while we remain optimistic on the medium-term outlook for the UK, we are cautious about the shorter-term impact of current uncertainty and pressure on real incomes which may temper growth in spending on housing RMI.”

Still, I am confident Grafton’s impressive progress on the continent and robust market positions should keep earnings on an upward bent.

The post 2 stocks that savvy growth hunters should consider appeared first on The Twelfth Magpie.

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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