While such a great result over such a short period is more based on luck than anything else, it does show how quickly small-cap shares can move upwards (although the reverse is also true). With this in mind, here are three more I’ve got my eye on. 

Seeing Machines

First on my list is Australia’s Seeing Machines (LSE: SEE). This AIM-listed company supplies systems that monitor drivers’ behaviour, thus reducing traffic accidents. 

Yesterday, Seeing announced that it had been appointed by another Tier 1 supplier to deliver its FOVIO tech to an additional North America-based OEM. Although only worth A$7m, this is another vote of confidence for the company. 

I’ve held SEE for many years now. While this hasn’t always been a comfortable ride, highlighting the risk involved, I haven’t sold and am now firmly in profit. The shares are up over 500% since markets around the world crashed. 

There’s no saying that the shares won’t dip again (there have been many ‘false dawns’), especially if investors continue to lose interest in tech stocks. However, given recent progress, I’d still buy at this level.

The Fulham Shore

A second UK penny share that warrants consideration in my view is The Fulham Shore (LSE: FUL).

Shares in the owner of Franco Manca and The Real Greek restaurants are now almost 250% above the low hit in March 2020. That’s a terrific result and shows the potential rewards of buying what everyone is selling in troubled times.

Based on last week’s trading update, I think there could be more to come.

Last Friday, Fulham Shore announced that sales in the week to 18 April had been “very encouraging“. In fact, they were ahead of the same week in 2019, far before the word ‘coronavirus’ was on everyone’s lips. Naturally, this performance was achieved without any indoor seating. No wonder management is interested in expanding the company’s estate!

Taking this into account, I’d be tempted to buy a slice of this UK penny share now. However, I certainly wouldn’t bet the farm. A third wave of the pandemic is still possible.

Brickability

A third stock trading for pennies (just!) is blocks and bricks manufacturer Brickability (LSE: BRCK). Like SEE and FUL, the shares have enjoyed a storming performance recently — up 160% in just over one year.

It’s not hard to see why. Earlier this month, Brickability said that it would reveal revenue of roughly £180m and adjusted EBITDA of more than £17m for the last financial year. This was ahead of previous expectations.

Looking ahead, BRCK believes that demand for housing should lead to another strong year of trading. Unfortunately, there’s no guarantee of this. Also, many of those already holding this UK penny share might begin taking profits, causing the shares to dip.

That said, BRCK still trades on less than 15 times forecast FY22 earnings. A price/earnings-to-growth ratio of 1.1 also suggests investors are getting a lot of bang (or brick) for their buck. I think there’s still time to build a position here.

The post I was right about these UK penny shares! Here are 3 more I’d buy now appeared first on The Twelfth Magpie.

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Paul Summers owns shares of Seeing Machines Ltd and Arc Minerals. 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.

Contrarian play

While the rest of the restaurant market is struggling, Fulham Shore (LSE: FUL), owner of the Franco Manca and The Real Greek brands, is powering ahead. 

Considering the state of the rest of the restaurant industry, I wouldn’t blame you for wanting to stay away from Fulham Shore. However, the firm seems to be firing on all cylinders. The shares jumped 10% in early deals this morning following a pre-AGM trading statement which states: “There have been encouraging revenue increases in both Franco Manca and The Real Greek in the first 21 weeks of the financial year.“

The trading update goes on to note that revenue has been rising thanks to “a slightly greater number of transactions” driven by “menu innovation, the quality of food, the value of our propositions and dedication of our team.” It speaks volumes about the company’s offering to customers that Fulham Shore is managing to grow at a time when the rest of the casual dining sector is struggling.

The question is, can the company keep this up? I believe it can. Unlike other operators, Fulham Shore is not rushing to expand. There has only been one net addition to the group’s restaurant portfolio so far in fiscal 2019. And while management is in “the final stages of negotiations” for several new locations, the development of these will be funded “largely through internally generated cash flow.“

Unsustainable debt burdens are one of the primary reasons why restaurants go out of business. It’s refreshing to see that Fulham Shore doesn’t want to make the same mistake. 

City analysts have the company reporting EPS of 0.7p for 2018, on a net profit of £3.1m. Revenue is expected to grow 29% year-on-year. Based on these figures, the stock trades at a forward P/E of 16.2 which, in my mind, is a price worth paying for such a fast-growing enterprise. 

Undervalued tech play

I’m equally bullish on project management software business, Elecosoft (LSE: ELCO). 

After several years of consolidation, City analysts have the company reporting earnings per share growth of 33% for 2018. Personally, I believe there’s a chance the firm could beat this number. In a trading update for the six months to 30 June, published the beginning of this month, management told investors unaudited profit before tax was up 45% year-on-year. 

Looking at these numbers, it’s no surprise to me that the stock is trading at a forward earnings multiple of 21. In my mind, this valuation undervalues the business’s potential. Analysts have earnings growing by another 20% in 2019, and that’s before the impact of any acquisitions. 

In July, the company acquired Shire Systems for £6.3m to boost its stable of products. And with a net cash balance of £2.3m, I wouldn’t rule out further deals in the months ahead. 

Put simply, I reckon it could be time to snap up this hidden gem before the rest of the market catches on.

The post There’s still time to buy these high-growth stocks before they take off 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.

Rising inflation, slowing wage growth and the shadow of Brexit are beginning to hit consumer confidence and spending. Should investors turn their backs on companies whose profits tend to be hit the hardest in times like these? Not necessarily.

The Real Deal?

As as a holder of stock in restaurant owner Fulham Shore (LSE: FUL) I was heartened by today’s final results and the market’s reaction to them. 

Thanks to a raft of new openings (13 Franco Manca pizzerias and three The Real Greek restaurants), total group revenue grew by just over 41% to £41.3m over the last year. Group Headline EBITDA rose 36% to £7.1m with operating profit rocketing 153% to £1.3m from £500,000 just one year ago. 

Of course, expanding any business costs money so it comes as no surprise that net debt levels at the company have also increased 80% to £5.9m. Nevertheless, I’m comforted by the company’s strategy to expand at a reasonable rather than breakneck pace by waiting for “the right sites with the right rents“. This also feels prudent given the recent increase in food costs, reduction in the availability of skilled European restaurant staff and the possibility of ongoing terrorist activity impacting on the number of tourists visiting London (where the vast majority of the company’s sites are).

At first glance, shares in Fulham Shore look rather expensive at 28 times earnings. However, a price-to-earnings growth (PEG) ratio of under one suggests that new investors would still be getting great value for money. There’s no dividend on offer but that’s to be expected.

With a 38% rise in earnings now expected in 2018, I also think Fulham Shore might be a better buy than pub giant JD Wetherspoon (LSE: JDW), which issued a trading statement this morning.

Rising debts

A beneficiary of the recent warm weather, total and like-for-like sales at the Watford-based business rose by 3.6% and 5.3% respectively in the 11 weeks to 9 July. This compares favourably to the numbers for the year to date (total sales up 1.9%, like-for-like sales up 3.9%).  

Trouble is, I struggle to be convinced that its stock — on a valuation of 17 times earnings — looks good value for a number of reasons.

First, the huge estate of over 900 pubs will always be a burden. Indeed, the company expects capital expenditure to hit around £65m this year as a result of renovation work at some of its older sites. Tellingly, it has already indicated that this level of expenditure will continue or be slightly higher “for the next few years“. With just over 50 restaurants to its name, a more nimble operator like Fulham Shore looks far more appealing in this respect.

Despite stating that it “remains in a sound financial position“, Wetherspoon’s net debt levels have also been steadily rising over the last five years, from £463m in 2012 to today’s figure of around £715m. When you consider that the company is only valued at just under £1.1bn, a rise of this magnitude would make me rather nervous as an investor.  

There’s also the issue of product differentiation. While selling pizzas is admittedly nothing new, Franco Manca’s low-price sourdough recipes have been generating huge amounts of positive feedback. In contrast,Wetherspoon fails to offer anything that visitors would struggle to get elsewhere. 

With barely any earnings growth now expected in 2018, I think most investors would do well to avoid the shares for now.

The post This small-cap growth stock looks a far better buy than JD Wetherspoon plc appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Fulham Shore. 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 problem however, is that rollouts can be pretty expensive. Profits often only kick-off once a rollout story becomes self-funding, or when the cash generated by its operations is greater than the capital required to open new locations. In this article I’m going to reveal three promising rollout stories and take a look at the respective funding situations.

Something Tasty For Everyone

Tasty (LSE: TAST) operates the Wildwood casual dining brand which sells a wide variety of food, though largely Italian. It aims to provide “something for everyone”, with choices that range from steaks to pizzas to risottos. It has 61 locations and expects to open a further 16 by the end of financial year 2017.

The company’s expansion is not yet self-funding, but I expect it to be so by the time it has around 95-100 restaurants. Therefore, it should reach this level in a couple of years. I believe the company could be worth well over double its current market cap in the next three or four years. The management team is top quality too. The Kaye family, the masterminds behind 10-bagger Prezzo, are leading the rollout which helps inspire confidence.

Viva la revolución

The Revolution and Revolución de Cuba bars operated by Revolution Bars Group (LSE: RBG) offer premium cocktails in a Cuban-styled setting. With an estate of 66 bars, the company is already self-funding. It spent £12.8m on rolling out new bars and upgrading old ones last year, but generated £14.2m in cash from its own operations.

The company’s 2% like-for-like sales growth isn’t all that exciting but if you include the four new sites opened last year, sales jumped 12.7%. Better yet, the company’s valuation looks rather undemanding. The PE is only 16 times last year’s earnings. For a debt-free, fast growing, self-funding roll-out with a reputable format, that seems a steal.

A Greek, an Italian and a Grill

The Fulham Shore (LSE: FUL) operates a number of London-based restaurant franchises, including The Real Greek, Bukowski Grill and sour-dough pizza chain Franco Manca. All of these franchises operate in the casual dining market, typically charging between £8 and £16 a head.

Admittedly I’m not as familiar with this company as the other two I’ve mentioned, but the Franco Manca brand is well-regarded in London. Recent financial results imply some success too, with revenue jumping 43% in the first half of this year and operating profit following suit with a 42% increase. The company says it must invest in its central operations, so I wouldn’t be surprised if margins take a little bit of a hit in the short term. The company generated £7.1m in cash last year and spent £9.3m on its estate. I believe the company will likely be self-funding in the next few years, although with a market cap of £119m, this is perhaps the most expensive rollout I’ve mentioned today.

None of these stocks look conventionally cheap, but if they can hit the point of self-funding and maintain success with their formats, I imagine future returns could be attractive.

The post 3 growth stocks I’d buy before it’s too late appeared first on The Twelfth Magpie.

More reading

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• Up 446% in 12 months! What’s next for the Ceres Power share price?
• 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
• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Zach Coffell has no position in any shares mentioned. The Motley Fool UK has recommended Tasty. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.