Hotel Chocolat

High street and online retailer Hotel Chocolat (LSE: HOTC) should be releasing its delayed set of full-year results on 5 October. Normally, a postponement would be taken negatively by shareholders but HOTC’s share price has held up well. In fact, it’s up almost 9% over the last month.

This isn’t completely irrational. Back in July, HOTC said revenue in its last financial year hit £165m. That’s 24% higher than in FY19 — the year before Covid-19 struck. So trading’s clearly far from terrible. 

On the flip side, I’m conscious that only a relatively small percentage of stock is actively traded (CEO Angus Thirlwell still owns over 25% of the company). Such a small free float does mean it’s share price is theoretically more susceptible to violent moves, both up and down.

This matters considering the valuation. A P/E of 42 looks very expensive and HOTC simply can’t afford to rest on its laurels if recent momentum is to continue. Should it disappoint in any way (perhaps in relation to rising costs), I might actually get the entry price I’ve been looking for. 

Tristel

Another steeply-valued small-cap UK growth stock reporting next month is contamination control product manufacturer Tristel (LSE: TSTL). It reveals full-year figures on 18 October. 

Like Hotel Chocolat, Tristel is a stock I’ve long admired but never pulled the trigger on. It’s a high-quality, financially-sound company operating in a niche area. Let’s not forget that Covid-19 has cemented the need to do everything possible to reduce infection in healthcare settings. This should provide the company with a springboard for further sales growth. 

However, I just can’t get away from that valuation. A P/E of 60’s eye-watering, even if Tristel has hinted that a rise in (non-pandemic-related) hospital admissions towards the end of its financial year has increased demand for its disinfectant products.

Regardless of it doing everything right from here, a more general stock market wobble could really hammer the price as investors dash to cash. That makes for an unattractive risk/reward trade-off, in my view. As a result, Tristel remains stuck on my watchlist, for now.

Totally

Penny stock Totally (LSE: TLY) is a final small-cap UK growth stock I’ll be following next month. A Q3 trading update from the healthcare solutions provider is scheduled for 28 October.

Of the three discussed today, TLY shares have performed the best over the last year, almost doubling in value. Based purely on valuation, Totally also looks a lot more palatable than both HOTC and TSTL. Its shares currently command a forward P/E of 22. The balance sheet looks fairly solid and there’s an experienced management team at the helm.

Naturally, there are things to be wary of. The fact that Totally is only trading around the breakeven level right now is the key drawback for me. This is also a low-margin business. And while recent demand from the NHS has clearly been good, it’s worth questioning what happens when the Covid-19 storm finally passes. 

Another interesting UK growth stock then, but not one I’d feel comfortable buying before next month’s update.

The post 3 UK growth stocks I’m watching in October 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 Hotel Chocolat. 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.

But let’s stay optimistic. Thanks to their ability to rapidly increase revenue and profits, I think there are many small-cap growth stocks whose share prices could really shine. Here are three with strong potential. 

Drink up

Assuming bars, pubs, and sporting venues are allowed to fully open by spring, I think beverage firms such as AG Barr (LSE: BAG) could do well. Drinks companies do have a habit of bouncing back firmly after general market setbacks. This time should be no different.

That’s not to overlook just how hard the last year has been. Revenue and pre-tax profit have tumbled in 2020 due to the incredible headwinds faced by the hospitality sector. I’m also under no illusion that it will take some doing for Barr to recover back to the 950p mark it hit in 2019.

Then again, it’s got a lot going for it. In addition to its flagship IRN-BRU brand, Barr looks financially solid. The business had over £30m in net cash when it last reported to the market.

Although not currently paying out dividends, management does expect cash returns to resume in 2021 too. That’s the sort of bullish talk I like to hear.

Right space, right time

As widely expected, the share price of infection prevention specialist Tristel (LSE: TSTL) has enjoyed an excellent 2020. The £250m business is up almost 40% year-to-date. That’s despite sales being lower in early 2020 due to many operations being deferred by the pandemic.

Positively, CEO Paul Swinney revealed last week that Tristel had seen a “substantial recovery in demand” for its products since October. Pre-Brexit stockpiling by the NHS was a factor.

One reason the shares could continue rising in 2021 relates to the company winning approval from various regulatory bodies. In the US, Tristel has already spoken of “very encouraging progress” relating to its FDA test programme for its ‘Duo for Ultrasound’ disinfectant. Additional positive feedback has come from the Canadian regulator on its ‘Duo for Ophthalmology’ submission. 

Trading at 40 times forecast earnings already, at least some of this potential is already priced in. Even so, Tristel is a highly profitable, niche business with excellent finances. If another market crash presents me with an opportunity to do so, I’m backing the truck up. 

Ready to strike

For those of a risk-tolerant nature, ten-pin bowling firm Hollywood Bowl (LSE: BOWL) could also be worth backing.

While its offering is easily replicated, I think Bowl has a chance of recovering from the pandemic more speedily than, say, the UK’s battered airlines. A few games of bowling is far more affordable to families in tricky times than a holiday abroad. Even those with the means to travel when restrictions lift may adopt a ‘wait and see’ approach.

Only last week, the company reported it had seen “strong customer demand and better than expected performance” when it reopened after the first lockdown. That’s got to be encouraging.

The new tier 4 restrictions won’t help things in the near term. However, this may provide new investors an opportunity to strike on UK shares like this before the real recovery kicks in.

The post 3 UK small-cap growth shares I think could DOUBLE in 2021 appeared first on The Twelfth Magpie.

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Paul Summers owns shares of Nichols and AJ Barr. The Motley Fool UK has recommended AG Barr, Hollywood Bowl, and Nichols. 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.

Personally, I think things might get worse before they get better. With this in mind, here are three stocks from lower down the market spectrum that I think are definitely worth paying attention to next month.  

Hot stock

First up is infection prevention product supplier Tristel (LSE: TSTL). For fairly obvious reasons, this is a company that has received a lot of attention from investors recently. And despite slipping back in recent weeks, its stock is still up 46% since March’s nadir.

Tristel is a company I’ve coveted for a while. The only problem is that its shares have long felt very expensive. Right now, for example, they change hands for 38 times earnings. That’s punchy when the future looks so uncertain, even for a company in a ‘hot’ space. 

But if there is a significant second wave, the shares could be one of the few winners. If, however, there’s a mass market crash for more economic reasons, some of the recent gains could be lost. 

I’ll definitely be checking out the firm’s latest trading update on 22 July.

Lockdown winner

A second small-cap reporting in July is one I’ve hitherto avoided like the plague: online electrical retailer AO World (LSE: AO). More fool me. The shares are up almost 200% since March’s market crash.

As you might expect, AO has been a huge beneficiary of the lockdown with more people needing tech to work and shop from home. Earlier this month, it spoke of having grown market share and seeing “increased demand and sales across all categories”. The question now is whether the shares can extend their gains or everything is fully priced-in? I’m inclined to think the latter.

As much as it’s made money for opportunistic investors in recent times, I just can’t get excited about a business operating in such a competitive sector. When demand is massive, even loss-making firms (such as this one) can do well. What happens, however, when supply chains at larger rivals get back to normal?

Still, good luck to those already holding. For those who aren’t and fancy a (very-un-Foolish) dabble, I suggest only doing so with money you won’t miss. 

AO is down to report to the market on 14 July.

Calm before the storm

My third pick of shares worth watching in July is an old favourite: insolvency specialist Begbies Traynor (LSE: BEG). If any stock is a compelling counter-cyclical candidate at the current time, this must surely be it. 

Last month, Begbies reported that it continues to trade well “with strong growth in revenue and profit compared to the prior year“. With many businesses still shut, I suspect this situation won’t have changed by the time the company reports full-year figures on 21 July.

But forget the last few months — I think the firm might be flooded with business in the rest of 2020. And even if it takes some time for this to be reflected in the share price (particularly if there’s a second market crash), there will be dividends to collect in the meantime. 

Begbies trades at almost 16 times earnings and yields a forecast 3.2% for FY21.

The post Fear market crash 2.0? Watch out for these small-cap stocks in July 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.

Today, I’m looking at three great examples, all of which report to the market next month. 

Gaming for growth

Cambridge-based video games developer and publisher Frontier Developments (LSE: FDEV) releases interim results on 5 February. From a business perspective, I doubt those already holding have much to fear.

Earlier this month, the company indicated that total revenue for the six months to the end of November would be £32m – a 28% rise on that achieved over the second half of the previous financial year. That said, it’s worth mentioning that this would be significantly less than the near-£65m achieved over the same period in 2018, highlighting the extent to which sales in this industry can fluctuate according to when games are released.

Having “performed well” over the festive period (and based on the initial success of Planet Zoo – its fourth franchise), Frontier’s management now believes full-year sales will come in within analyst expectations of between £65m and £73m. 

Boasting a strong net cash position and rising returns on capital, this is the sort of company I’d usually get in line to buy. On an eye-watering forecast price-to-earnings ratio of 54, however, a lot of the good news looks firmly priced in.

With shares up 40% in just six months, I’m inclined to wait and see if results day brings out the profit-takers.

In a sweet spot

Another small-cap reporting next month (25 February) is chocolatier Hotel Chocolat (LSE: HOTC).

Like Frontier, the AIM-listed firm enjoyed a sweet 2019, with its share price soaring almost 60%. Hotel is also generating great sales momentum, announcing last week that total group revenue over the 13 weeks and 26 weeks to 29 December had climbed 11% and 14% respectively. 

The company is also growing its presence, both in the UK (nine new stores were opened over the second half of 2019) and abroad (four sites in the US and five in Japan). It boasts over 1.1 million active members in its VIP-Me scheme and is even targeting the vegan market with its new Nutmilk chocolate – deemed an “immediate hit” by management. 

Talk of “modestly higher” costs “due to inefficiencies in the supply chain” may explain why the shares took a temporary dive last week but I think it’s more to do with the valuation – a very steep 44 times earnings.

It’s a great business but I’m conscious that no stock is worth buying at any price, especially a high street retailer.

Cleaning up

A third small-cap showing great positive momentum of late is infection prevention and contamination control product manufacturer Tristel (LSE: TSTL).

December’s AGM statement from the Snailwell-based business was brief but highly encouraging for those already holding.

Thanks to contributions from recent acquisitions, management reported that pre-tax profit for the first half of the financial year would be “no less than £2.8m” (£2.4m was achieved over the same period in 2018).

This, combined with news that its push for regulatory approval for its products in the US was “progressing well” has only served to send the shares higher.

Like both Frontier and Hotel Chocolate, however, the valuation is looking frothy at 33 times forecast earnings. Having climbed 85% since November, I have my doubts about whether the stock can maintain its current momentum.

Half-year numbers will be confirmed on 24 February.

The post I think these 3 small-cap growth stocks are the real deal. But are they too expensive? appeared first on The Twelfth Magpie.

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• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Hotel Chocolat. 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.

Revenue is up around 142% over the past five years and normalised earnings have shot the lights out, rising more than 2,000%. There’s been robust cash inflow over the period, which has given solid support to profits and enabled a rise in the dividend of about 1,225%. The figures prove the firm’s growth has been worthwhile and profitable, and investors have been rewarded with a rise in the share price of about 1,400%. Could we really ask any more of a small-cap investment?

More great results

There’s more good news in today’s half-year results report. Revenue is up 12% compared to the equivalent period last year and much of the advance reflects progress abroad. Overseas sales increased by 19% and now make up 53% of total sales. Earnings per share lifted 13% and the directors expressed confidence in the outlook by raising the interim dividend by a whopping 28%.

In November, Tristel acquired the Ecomed Group, which it is integrating into operations now. We’ll get a better idea of how the new addition is contributing to profits with the full-year report in around six-months’ time.

Other highlights include receiving a couple of US Environmental Protection Agency (EPA) approvals, which are part of a long-running effort to get all the regulatory approvals in place before attempting to break into the US market. And, interestingly, the company transferred the responsibility for CE marking of its medical device products from BSI UK to BSI Amsterdam “to mitigate Brexit-related risks,” and also set up a warehouse hub in Antwerp. But the firm seems to have some confidence in the looming post-Brexit environment because it also leased a new warehouse in Newmarket.

Brexit-ready and poised to grow

Chief executive Paul Swinney said in the report the company had executed the best plan it can to “mitigate the potential effects of a no-deal Brexit.”  Indeed, he owned up to looking forward with “a high degree of confidence.” And City analysts following the firm seem optimistic too, predicting double-digit percentage advances in earnings for the full year and the following year to June 2020.

I’m bullish on the firm too. I think the company has decent financial quality indicators with the return-on-capital figure running close to 21% and operating margin at almost 18%. The management seems to be well-motivated and executing well. If all the ongoing regulatory hurdles can be negotiated without breaking the firm’s bank account and within a reasonable time frame, we could see another explosion in growth if Tristel can crack the US market.

But the valuation looks full, which reflects all the operational success so far. At today’s share price close to 290p, the forward-looking price-to-earnings (P/E) ratio is sitting around 24 for the trading year to June 2020. Meanwhile, the share-price chart shows consolidation since August 2017. I’m not against high-looking P/E ratios as long as a company keeps on delivering decent growth, and I think the US opportunity looks exciting with Tristel. 

The post This promising small-cap growth company could crack America! 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.

Here are two minnows that I think are worth keeping an eye on in February. 

Game on

£350m cap game developer and publisher Frontier Developments (LSE: FDEV) will report its interim financial results for the six months ended 30 November 2018 on 6 February. Based on this month’s trading update, management is likely to report “record” numbers thanks to the success of its third franchise — Jurassic World Evolution. 

The manage-your-own-dinosaur-park game has now sold in excess of 2 million units, most of which were downloaded rather than purchased from a shop. Elsewhere, Frontier’s other franchises, Elite Dangerous and Planet Coaster, “continue to perform well“.

Revenue of roughly £64m for the six-month period was mentioned, which would be a staggering 236% improvement on that recorded the previous year. In addition to selling more games, Frontier’s strategy of providing free updates and additional content (at a price) as a way of keeping people interested in the titles would appear to be paying off.  

As far as the full-year is concerned, management remains “comfortable” with market expectations on revenue falling between £75m and £88m and believes this “should exceed the mid-point of this range“. 

Having more than halved in value in seven months, you might think Frontier’s stock trades on a tempting valuation. Unfortunately, it’s still far from cheap on a little less than 22 times forecast earnings. There are no dividends to speak of either, so those holding must pin all their hopes on capital growth for now.

Nevertheless. CEO David Braben’s promise to provide more information on the company’s fourth game franchise “in the coming months” could be a catalyst for the shares to move higher. The fact that less than 50% of the stock is actually available to the public could also accentuate any upside. 

US-bound? 

Also worthy of further research, in my opinion, is small-cap infection-prevention, contamination control, and hygiene product manufacturer Tristel (LSE: TSTL). The company is due to release its interim results on 25 February. 

Based on comments made in December’s AGM, the small-cap expects to report pre-tax profit of “no less than” £2.2m for the first six months of its financial year (ending in June 2019) — 10% higher than in 2018. Importantly, this takes into account Tristel’s recent purchase of Benelux distributor Ecomed Group but only one month of the latter’s contribution to revenue and profits.  

Having climbed to as high as 342p last summer, the stock is now pretty much back to the price it was one year ago (275p). Like Frontier, however, Tristel is most definitely not a stock for value hunters.

A forecast price-to-earnings (P/E) ratio of 27 suggests a lot hinges on the company’s ability to build a presence in the US. The process of getting the necessary regulatory approval for its products is “progressing as planned“, according to CEO Paul Swinney,

Should approval be given, the upside could be huge. For now, however, you’ll need to pay a premium for a chance to enjoy that ride. 

The post 2 promising small-cap growth stocks worth watching in February appeared first on The Twelfth Magpie.

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• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

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.

Revenue increased 10% compared to last year, and adjusted earnings per share rose 10% after removing the effect of share-based payments. However, with those payments put back in, the basic earnings-per-share figure actually fell by 5%. Nevertheless, the directors pushed up the ordinary total dividend for the year by almost 14%, although there was no repeat of last year’s special dividend.

Aiming for expansion in America

Revenue from overseas accounted for 51% of the total, up from 47% last year, and I reckon one of the drivers of what’s been a high-looking valuation has been speculation about the firm’s prospects in North America. Chief executive Paul Swinney said in the report: “Our plans to enter the United States market remain on track and continue to progress well.”

However, he also told us that although the driver of revenue growth was the firm’s overseas activity, overall, “sales growth was at the lower end of our target range.” He also told us the uncertainties about the Brexit process have prompted the company to build up its inventory of all component parts and finished products. Tristel also advised its customers in Europe to increase their stock holdings over the coming months “in preparation for possible disruption to the supply chain.”

Despite the warnings, the directors believe Tristel will be able to sell its disinfectants in Europe, whatever the outcome of the Brexit negotiation. But Swinney is certain that turbulence in the year ahead will disrupt the normal predictable pattern of trade. Meanwhile, the company is pursuing the relevant regulatory approvals to trade in the US, and the longer-term outlook is “very positive.”

There was enough in the report to knock the froth off the valuation, though, and the share price is down almost 25% since its early October peak – and plummeting. Prior to the fall, we were looking at a racy forward price-to-earnings (P/E) ratio in the mid-thirties. Today, in this volatile market, I’d avoid shares in Tristel, and reassess the opportunity when the stock settles down at its new level.

Powering ahead

However, I don’t have such qualms about fast-growing e-banking and international payments firm FairFX Group (LSE: FFX). In September’s half-year results report, the firm revealed a 97% increase in revenue, to £12m, compared to the equivalent period last year. Adjusted profit, before tax, rose to £2.6m, from £0.2m the year before.

Chief executive Ian Strafford-Taylor said in the report he expects operationally-geared revenue to “increasingly flow through to profit” in the second half of the year. Despite weak sterling, Brexit, and fewer people taking holidays, he’s confident that full-year results will be “in line with expectations.” 

Meanwhile, City analysts have pencilled in earnings of more than 9p per share for 2019, which puts the firm on a forward P/E ratio of around 14 at today’s share price close to 130p. I think the outlook for growth is strong and see any weakness in the share price now as an opportunity for me to buy.

The post One stock I’d snap up and one I’d avoid in this market turmoil appeared first on The Twelfth Magpie.

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• Up 132% and surging, how is this FTSE 250 share STILL so cheap?

Kevin Godbold owns shares in FairFX Group but not in Tristel. 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.

NMC Health (LSE: NMC) may not be the best known FTSE 100 healthcare giant. But I am convinced that its presence in the lucrative Middle East, built by a steady raft of acquisitions, allied with its plans to expand its presence into other emerging markets, makes it no less compelling as growth pick than GlaxoSmithKline or AstraZeneca.

But before I continue I would like to take a look at Tristel (LSE: TSTL) too, which found itself edging to three-month highs on Tuesday following the release of decent half-year numbers, which I believe is another London-quoted share on the path to delivering brilliant shareholder returns.

Overseas giant

Tristel, which manufactures infection prevention and contamination control products, advised that revenues jumped 10% during July-December, to £10.7m. This drove pre-tax profit 18% higher to £2m.

While sales in the UK dropped 4% in the first half, to £5.4m, turnover generated from foreign climes grew 28% in the period (also to £5.4m). Revenues generated from foreign markets now account for just over half the group total versus 43% a year earlier.

And Tristel has ambitious plans to develop its international operations still further. As well as revamping its sales force in Hong Kong, it also expects to enter the US hospital market imminently (approval from the Environmental Protection Agency is anticipated later this year).

Bright growth picture

With revenues abroad steadily taking off, City analysts are expecting Tristel to follow a predicted 3% earnings advance in the year ending June 2018 with a further 13% advance for the next year.

And these bright profit predictions are likely to keep dividends rising at a fair lick, or so says the Square Mile. So fiscal 2017’s 4.03p per share reward — itself up 21% year-on-year — is expected to rise to 4.5p in the present period, and again to 4.9p in the following year.

As a consequence, Tristel carries handy (if not exactly spectacular) yields of 1.7% and 1.8% for fiscal 2018 and 2019 respectively.

The healthcare colossus may be pretty expensive on paper, rocking up on a forward P/E ratio of 32.6 times. However, I would consider this rating fair value given its rising global might.

Expensive but exceptional

I would also encourage investors to look past the elevated earnings multiples over at NMC (the company currently sports a prospective P/E ratio of 31.5 times).

That is not only because the company has proven itself a formidable generator of double-digit earnings growth for many years and thus worthy of such a rating, but also because a corresponding sub-1 PEG reading of 0.6 suggests the Footsie play could actually be considered a bargain relative to its probable growth trajectory.

NMC is predicted to pop out a 50% bottom line improvement in 2018, and to continue its hot profits record next year with a 22% rise next year.

And like Tristel, predictions of sustained, healthy profits growth is expected to keep dividends rising at a brisk pace. This means NMC’s dividend of 12.7p per share in 2017 is expected to jump to 19.2p in the current period and again to 23.5p in 2019.

Subsequent yields of 0.6% and 0.7% aren’t that impressive, but the prospect of this brilliant dividend growth should still make income investors sit up and take notice.

The post This FTSE 100 share isn’t the only healthcare stock on my shopping list appeared first on The Twelfth Magpie.

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• 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?

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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.

Fighting the urge

Patience is not only required when fighting the urge to take quick profits to the detriment of bigger long-term gains, but also in waiting for the right moment to buy a stock you’re particularly keen on. Seasoned investors who practice the strategy of buying on the dips will know exactly what I’m talking about. It always makes sense to buy shares in a quality company with great long-term prospects, but it makes even better sense when those shares are bought at a more sensible price.

It’s for this reason experienced investors use watchlists to keep an eye on their favourite stocks, ready to pounce when the opportunity presents itself. I’ve found watchlists particularly useful with high-growth small-caps commanding very high earnings multiples. In these instances it can often be prudent to stay on the sidelines and wait for the dips created by short-term sell-offs in order to gain a more favourable entry point.

Be ready to pounce

For instance, surgical and advanced wound care specialist Advanced Medical Solutions (LSE: AMS) has seen a fivefold increase in its share price in as many years, which in turn has left the shares trading on a very expensive earnings multiple of 33. Rather than dismiss the stock altogether, investors might be better advised to monitor the share price over the coming months and be ready to pounce on any signs of weakness.

The AIM-listed firm based in Winsford, Cheshire, continues to deliver strong organic growth supported by research and development (R&D) activities that provide both product innovation and intellectual property. With a rising incidence of both chronic and acute wounds, and predisposing factors such as obesity and diabetes on the increase, I believe the group is very well positioned to continue on its current growth trajectory. This is one small cap growth stock that certainly deserves a place on your watchlist.

High-growth opportunity

It’s a similar story over at fellow AIM constituent Tristel (LSE: TSTL). A number of years of strong growth propelled the company’s share price to record highs of 317p last Autumn, and despite a recent dip, the shares are still trading on a heady price-to-earnings (P/E) ratio of 32 for the current fiscal year to June.

The Cambridgeshire-based group is a manufacturer of infection prevention and contamination control products with its lead technology being a proprietary chlorine dioxide formulation that addresses the human healthcare, contamination control, and animal healthcare markets.

Tristel enjoys high levels of market penetration here in the UK, and this is reflected in last year’s sales figures which revealed that overseas sales grew faster at 43% than domestic sales at 3%, with overseas sales representing 47% of total sales compared to 39% in FY2016.

I believe further international expansion will be a key driver of growth in the coming years, which makes Tristel is another high-growth opportunity you might want to keep an eye on.

The post 2 small-cap growth stocks I’m watching closely appeared first on The Twelfth Magpie.

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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Advanced Medical Solutions. 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.

Exceeding expectations 

Revenue climbed 19% to just over £20m in the year to the end of June, with pre-tax profit coming in 24% higher at £4.1m. According to CEO Paul Swinney, these numbers exceeded both market and management expectations. 

Much of today’s good news can be attributed to the company’s strong performance overseas. Having soared 43% to £9.6m over the reporting period, international sales now represent almost half of the Snailwell-based small-cap’s total revenue. While a proportion of growth can be explained by favourable currency movements, Tristel’s decision to acquire its Australian distributor has clearly done no harm at all to its top line.

Given that the company is now on the cusp of making huge strides in the North American market, having recently made its first regulatory submission, I think there could be a lot more good news coming for holders in 2018. While some investors were clearly disappointed by the recent announcement that there would be a delay to the approval timetable, Tristel’s management remain unfazed with first sales still expected in the next financial year. This, combined with recent investment in Mobile ODT (which connects point-of-care diagnostic devices to smart phones), not to mention the company’s net cash position (£5.1m) and lack of debt, make me very bullish on the £126m cap’s future.

So, no downsides? Not quite. The huge potential for increasing sales of the company’s chlorine dioxide formulation means that Tristel’s shares are now very expensive to buy and, some would say, priced to perfection. Based on earnings per share of 8.06p over the last year, the company’s stock has a trailing price-to-earnings ratio of 35. Whether that’s a price worth paying is up to you.

Multibagger in the making?

Tristel isn’t the only small-cap stock with a very promising outlook. Another company that’s caught my attention recently has been specialist drug discovery and development business ImmuPharma (LSE: IMM). Based on recent share price performance, it seems I’m not alone. Shares have pretty much doubled from the 50p mark reached one month ago as expectations continue to build surrounding Lupozor — the company’s key drug designed to tackle Lupus, the potentially life-threatening auto-immune disease. With all patients having passed through the six-month stage of testing, it now expects to report top-line results from its Phase III trial in Q1 2018. The fact that the company has already begun to prepare regulatory submissions suggests that management is already confident of a successful outcome. 

Aside from this, interim results in late September revealed the company’s finances to be in good order with net assets of £6.4m by the end of the reporting period. While this continues to be a lossmaking business, research and development expenses are slowly reducing and the £4.1m fundraising in March should give the £129m cap more than enough cash to play with going forward.

A riskier play than Tristel? Sure. Nevertheless, if results from the aforementioned trial go the company’s way, the recent increase in ImmuPharma’s valuation could be just the beginning. 

The post These stellar small-cap stocks could be good for your wealth appeared first on The Twelfth Magpie.

More reading

• The £15bn defence splurge that could send UK shares soaring in July
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• 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?

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.