However, after such a large share price rise, the stock appears to be somewhat overvalued. Therefore, this smaller company could be worth a closer look for the long run.

Improving performance

The company in question is building services group T Clarke (LSE: CTO). It released a generally positive trading update on Friday, with its performance in the period since 1 July being upbeat. It is expecting to deliver results which are in line with guidance for the full year, with pre-tax profit due to be £6.5m and revenue expected to be higher than £300m.

The company’s forward order book now stands at £380m versus £320m at the same time last year. The integration of recently acquired ETON Associates seems to be progressing as planned. Alongside investment in its new off-site prefabrication manufacturing facility at Stansted, it could provide a catalyst for future growth. With continued demand for its specialist services and the company winning a number of contracts recently, its operational and financial performance could improve in future.

Valuation

Looking ahead, T Clarke is forecast to post a rise in its bottom line of 5% in the current year, followed by further growth of 8% next year. This puts it on a price-to-earnings growth (PEG) ratio of just 0.7, which suggests that it may offer a wide margin of safety. Since the company has a price-to-earnings (P/E) ratio of around 6, it offers a dividend yield of 4.6% from a shareholder payout that is covered 3.5 times by profit. This indicates that there could be dividend growth ahead.

In contrast, Fevertree seems to have a relatively high valuation. The company’s P/E ratio of 60 may be easy to justify in the current year when earnings are due to rise by 60%. However, the financial performance is set to be less impressive next year. Its bottom line is expected to grow by just 4%, which puts it on a PEG ratio of around 13. This indicates that there may be a lack of upside potential on offer after an extremely profitable 2017 for investors.

In addition, Fevertree yields just 0.5% from a dividend which is covered 3.9 times by profit. While dividend growth may be high, its income return lags inflation.

Takeaway

While Fevertree Drinks has experienced a stunning 2017, next year may not be so prosperous for its investors. A high valuation and lack of strong earnings growth could make other companies such as T Clarke worth a closer look at the present time. Certainly, small-caps can be relatively risky, but the potential rewards may also be high.

The post One small-cap growth stock I’d consider ahead of Fevertree Drinks plc 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.

Today, I’m going to look at two value stocks trading well above recent lows, and explain why I think there’s still time to buy.

Solid foundations

Construction firm Keller Group (LSE: KLR) is a “geotechnical solutions specialist”. In other words, it builds foundations and performs groundworks for large, complex construction projects. Think Crossrail, power stations and ports, rather than housing estates.

The group issued a trading update on Thursday that showed the first four months of the year is ahead of the same period last year, in-line with expectations.

Encouragingly, order intake for during the third quarter was described as “good”. Keller’s like-for-like order book for the next 12 months is now at an all-time high, 15% above the same point last year.

This stock has now risen by 43% from the lows which followed last October’s profit warning. But if trading remains in line with expectations, then broker forecasts suggest underlying earnings per share should rise by 19% to 90.4p this year, putting the stock on a forecast P/E of 10.5. A 5.4% dividend hike is expected, giving the stock a forecast yield of 3.2%.

In my view, the opportunity for investors is that Keller’s performance may continue to improve, leading to upgraded full-year guidance and further share price gains. Keller could also benefit if the pound continues to gain strength against the dollar.

This small cap is trading well

Another building stock that seems to be performing well at the moment is services contractor T Clarke (LSE: CTO). This £38m firm’s share price has risen by 52% so far this year.

These gains appear to have been driven by a strong order book and significant upgrades to earnings forecasts for 2017. Clarke’s broker now expects the firm to deliver sales of £300m and earnings per share of 11.3p this year, up from £265m and 9.5p per share a year ago.

However, the company’s latest trading update suggests that another round of upgrades may be on the way. On 5 May, Clarke reported that its order book had risen above £400m for the first time, up by 22% so far this year. As a result, the firm expects “revenues and profits for 2017 to be ahead of current market expectations”.

Clarke appears to be on a roll, with strong order intake. The firm’s balance sheet also looks sound to me, with net cash of £9.2m reported at the end of 2016.

However, it’s worth remembering that this firm is a low-margin contractor. A downturn in construction market activity levels could lead rapidly to Clarke’s order book drying up. Although the group has a strong balance sheet, its operating margin was just 1.6% last year.

At the last-seen share price of 90p, T Clarke shares trade on a forecast P/E of 7.6 and offer a prospective yield of 3.8%. In my view, the shares remain attractive at this level and could deliver further gains. But I think potential shareholders will also need to keep a close eye on market conditions, to avoid being caught by the next downturn.

The post 2 overlooked value stocks to consider buying today appeared first on The Twelfth Magpie.

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Roland Head 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.

Cheap growth play

Today’s year-end update from building services group T Clarke (LSE: CTO) shows that it is making excellent progress. Its underlying profits for 2016 were substantially ahead of the previous year. As such, it has entered the current year in a strong position in terms of its cash position and order book. In fact, its cash position improved for the fourth successive year and is now £9.2m, which is 39% higher than at the end of the previous year. Similarly, its forward order book has strengthened to £330m, from £300m a year ago.

Looking ahead, T Clarke is expected to record a rise in its bottom line of 20% in the current year. Given that it trades on a price-to-earnings (P/E) ratio of 9.6, this equates to a price-to-earnings growth (PEG) ratio of only 0.5. As a result, further share price gains seem to be on the cards even after today’s 21% price rise.

Of course, the construction industry faces an uncertain future. Brexit could cause inflation to increase via a declining pound and this may hurt demand across the construction sector. However, this risk appears to be sufficiently priced in to T Clarke’s valuation and it seems to offer a relatively wide margin of safety at the present time. So, while gains of the magnitude recorded today may not become commonplace, a significant rise in its share price could take place over the medium term.

An improving technology stock

While T Clarke’s gains are impressive, technology company Ubisense (LSE: UBI) soared by 33% today, following the release of a trading statement. The ‘enterprise location intelligence’ specialist showed continued good progress in 2016 versus 2015, with its sales growth, margins, cost management and order book all ahead of the prior year.

The company’s increased focus on its Real-time Locating Systems (RTLS )software platform has paid off, with the signing of a global software licence deal with a major automotive manufacturer. Other new and extended RTLS product orders were all signed, which positions the company for future growth. Furthermore, it is in compliance with its banking covenants and expects to report a net cash position as of 31 December 2016, which has improved further during the last month, thanks to substantial debtor collections.

Clearly, Ubisense is a small company that lacks the size and scale of larger industry peer, and is therefore relatively high risk. However, its business seems to be moving in the right direction and with investor sentiment on the up, its share price could keep moving higher over the medium term.

The post Are these 2 micro-cap stocks worth buying after today’s 20%+ gains? 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?

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.