The company in question is Sopheon (LSE: SPE), which provides software to help companies manage innovation and product development. The firm’s client list includes blue-chip names such as PepsiCo, Proctor & Gamble and pharmaceutical giant Merck. So it seems to be a fairly credible business.

Sopheon’s revenue rose by 11% to $23.2m in 2016, while pre-tax profit rose by 125% to $2.7m. This dramatic increase was mostly down to a reduction in research, development and administrative costs, which fell from $7.1m in 2015 to $6.4m in 2016.

The company issued an upbeat AGM statement today. So far this year, 20 licence orders have been received, up from 14 at the same point last year. Revenue visibility for the full year is currently $17.5m, up from “just under $17m” last year. These figures suggest to me that the strong momentum seen last year is continuing, although revenue per licence may still be falling — a trend the company reported in 2016.

Sopheon ended last year with net cash of $4.2m, so debt doesn’t seem to be a problem. However, one risk facing shareholders is the prospect of serious dilution if £2m of convertible loans (due in 2019) are turned into shares. Doing so would increase the share count by 2.6m, or about 35%, effectively reducing earnings per share by about 26%.

For this reason, I’d argue that with a forecast P/E of 15 for 2017, Sopheon is fairly valued at present. I’d hold at current levels.

Will this disrupter make it big?

Shares of online estate agent Purplebricks Group (LSE: PURP) are worth 255% more than they were one year ago. Annual sales have risen from £3.39m in 2015 to a forecast level of £43m for the year ended 30 April 2017.

Encouragingly, the group’s UK business is expected to report a full-year adjusted EBITDA profit this year. The firm’s strong growth is expected to continue, but it’s worth noting that Purplebricks shares now trade on a price-to-sales ratio of 40. That’s astonishingly high, especially for a lossmaking business.

Investors are clearly pricing-in a dramatic increase in sales and profits in the future. One of the main reasons for this is the recently announced plan to expand into the US market. If successful, this could open the door to a market many times bigger than the UK.

However, gaining market share in the US — in the face of growing competition — is unlikely to be easy. Even if Purplebricks is eventually successful, I wouldn’t be surprised to see the group’s share price take a sharp step backwards at some point.

In my view, the valuation could take a sharp knock if market sentiment changes or if overseas growth is slower than expected.

For what it’s worth, I think it’s a good business that could be worth more at some point in the future. But I suspect shareholders will have a rocky ride. I believe a very long-term view will be needed to have any chance of making a profit from current levels.

The post This super small-cap could beat Purplebricks Group plc appeared first on The Twelfth Magpie.

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Roland Head has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended PepsiCo. 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.

Sopheon’s World

The international software and services provider may not have appeared on your radar before, but it makes its money helping its corporate customers boost their revenues and profits by bringing new products to market faster and improving their success rate. Investors have a soft spot for Sopheon after it published its full-year results for 2015, showing it has swung into profit, with management sounding increasingly confident about the future.

Sopheon posted 2015 revenues of $20.9m, a rise of 14.2% on the $18.3m it generated in 2014. It also made a pre-tax profit of $1.2m, turning around the previous year’s loss of $1.5m. EBITDA more than tripled from $1.2m to $4.1m. The outlook for 2016 also looks promising, with full-year revenue visibility of more than $12m, up 17.6% on the 2015 pipeline of $10.2m.

Uber-Mence

Chairman Barry Mence hailed his company’s “strong momentum and pipeline for further advancement in 2016“, which was helped by the release of new software platforms and investments in software services, including its new out-of-the-box Express solution. It has gained market recognition from industry voices such as Gartner, CIMdata and CGT magazine, all of which help drive the share price up to around 98p at time of writing. 

Investors in smaller companies like Sopheon, which has a market cap of just £7.06m must brace themselves for swings like these. Its share price is still below its 52-week high of 107.75p, while volatility is demonstrated by a year-low of 45p last August. Revenues may have risen to $20.9m in 2015 but that followed a dip last year. In 2013, revenues stood at $20.84m, almost identical to 2015. Effectively, they are flat over three years.

I am always wary of buying stocks on the back of a spike like this one. In October last year, for example, the share price leapt from 59p to almost 90p in a couple of weeks, shortly after it released its Accolade Enterprise Innovation Management solution, but it then yielded those gains over the next few weeks.

Licence To Thrill

Where the share price goes in the longer run depends on the success of its future product releases and continuing ability to secure licence transactions from new and existing customers. Revenues and profits may be volatile as a result. That said, Sopheon has an attractive offering, helping companies improve planning, governance and performance measurement on high-risk/high-reward initiatives.

Consumer Goods Technology (CGT) readers have named Sopheon a top provider of New Product Development & Introduction (NPDI) solutions for the consumer goods industry for the sixth consecutive year, which suggests a strong reputation and staying power.

I am also pleased happy to see that the company offers its services across a range of sectors, including defence, oil, high-technology, core consumer goods and chemical, protecting it from a downturn in any one of them. I won’t be diving in on the back of today’s share price bounce, there is always the danger of getting caught out by subsequent profit-taking, but will be adding it to my watchlist.

The post Can Sopheon Plc Build On Thursday’s 40% Share Price Jump? appeared first on The Twelfth Magpie.

More reading

• 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?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

Harvey Jones 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.