As long as you can tolerate higher capital risk and increased share price volatility, investing in companies outside the FTSE 350 can lead to substantial profits over the long term. Not only are these businesses often able to respond to changes in demand quicker, it’s also easier for them double their profits or more over a shorter period compared to those higher up in the market hierarchy. With this in mind, let’s take a look at two such companies that issued results today.

Game on

Following its unsuccessful joint bid with Rank to acquire William Hill, it’s not really surprising if today’s half-year report from online gaming company 888 (LSE: 888) attracts more attention than usual. Positively for investors, the results contain some excellent numbers. Revenue at 888Casino rose by 31% with active players in Q2 up 35% year-on-year. Even more impressively, revenue at 888Sport rocketed by 63% to $25m thanks to Euro 2016, increased marketing and successful launches in Italy and Denmark.

CEO Itai Frieberger is also optimistic on H2 performance: Trading in Q3 has started well with average daily revenue until 27 August 2016 15% above strong previous year comparatives and 22% higher on a like-for-like basis. With this strong momentum the Board remains confident of delivering against expectations for the full year.”

Given this confident tone, it’s unsurprising that shares in 888 were up 3.5% to 222.5p in early trading. With a reasonable forecast price-to-earnings ratio (P/E) of 17, the company looks fairly valued compared to many in the gaming/betting field. A forecast dividend yield of over 4% is the cherry on the cake.

Strong interims

Like 888, health and fitness facilities provider Gym (LSE: GYM) reported some decent figures today. Revenue jumped by just over 25% to £36.1m. The adjusted profit before tax figure of £4.6m is in sharp contrast to the £0.8m loss reported for the first half of 2015. Strong cash generation has also allowed the company to reduce its net debt to £2.5m, down from £7.1m last December.  

As far as operational progress is concerned, the company opened six news gyms in the first half (bringing the total estate to 80) and appears on track to meet its annual target of 15-20 openings. There was a 19.4% increase in membership and 2.1m more visits to its sites compared to this time last year.

With these numbers, it’s understandable that CEO John Treharne’s comments were upbeat: “We are confident that our low-cost, disruptive positioning in the market place, our well-developed rollout plans and our strong financial position bode well for further rapid and measured profitable development and progress, whatever the economic environment.”

In the aftermath of the EU referendum, investors are likely to be comforted by the end of that sentence. Its flexible approach to memberships and affordable subscription charges should mean it’s able to withstand any Brexit-related wobbles. Nevertheless, given the intensely competitive industry it operates in, I still need to be convinced that Gym is able to distance itself from rivals, particularly as its budget offering should be relatively easy to copy and perhaps improve on. 

At the time of writing, Gym’s shares are down just over 3%, following a substantial 13% rise on Tuesday. Despite this drop, the high valuation (P/E of 45) suggests that prospective investors may be better off waiting for a more attractive entry point.

Small can be beautiful

With teams of analysts poring over every fact and figure released by companies in the FTSE 350, the chances of a share being mis-priced are pretty slim. This isn't always the case with small-cap shares. Their size means that institutional investors either neglect to research them or can't buy them without deviating from the aims of the funds they manage, thereby allowing opportunistic investors the chance to grab slices of great businesses before the herd arrives.  

If small-caps grab your attention (and you've already contemplated your financial goals, investing horizon, attitude to risk and desired return), I strongly suggest you take a look at a special FREE report prepared by the experts at the Motley Fool. It highlights what they believe is a rising star in an under-appreciated industry.

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Paul Summers 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.