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Is this small-cap stock a better buy than Sirius Minerals plc?

Sirius Minerals. Fair use.

A growing world population means demand for food is likely to increase over the coming decades. This presents a challenge for farmers, but also an opportunity for investors. Clearly, planting more crops is one solution. However, increasing the yield from existing crops could prove to be a more cost-effective and successful method.

Due to this, the popularity of shares such as potash miner Sirius Minerals (LSE: SXX) has increased. Sirius is in the process of building a mine near York, which is expected to produce polyhalite fertiliser. Crop studies have shown it has been successful at improving crop yield, which could equate to high profits for the company in the long run. #

However, is there a better way for investors to access the growth potential within the crop enhancement industry? Could there be a more profitable place to invest than Sirius Minerals?

Upbeat performance

Reporting on Monday was Plant Impact (LSE: PIM). It focuses on R&D in crop enhancement technology in order to produce products that growers can use to increase the yield and quality of their crops. Its revenue in the first half of the current financial year increased by 17% to £4.9m. This was aided by favourable foreign exchange, while its gross profit rose 18% to £3.9m. With a cash balance of £6m, it seems to have the financial strength to invest in future growth opportunities.

Plant Impact achieved progress on each of the strategic initiatives that it is focused upon. It has made significant progress on the development of its next soybean products, while the sales of its products to Brazil were in line with expectations. With the company forecast to record earnings per share of 3.88p in the 2018 financial year, its forward price-to-earnings (P/E) ratio of 12.8 appears to offer fair value for money.

Contrasting outlooks

Unlike Plant Impact, Sirius Minerals currently has no revenue. In fact, it is forecast to remain without any significant income over the medium term, whilst it focuses on building its potash mine. As such, it arguably carries greater risk than Plant Impact over a medium-term time horizon. While Plant Impact may continue to increase profitability and become a larger business that is deserving of a rising share price, much of Sirius Minerals’ prospects over the coming years may already be priced in to its valuation.

Certainly, Sirius Minerals has growth potential in the long run. If its mine is successfully completed then the company could become hugely profitable, and its current valuation may prove to have been too low.

However, buying shares in an already profitable business for what appears to be a reasonable valuation may be a preferential move for investors. Both companies could benefit from rising demand for food across the globe, but Plant Impact could feel the effects sooner than Sirius Minerals. It therefore seems to be the more logical buy at the present time.

Top growth stock?

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The company in question may have gone under your investment radar - until now. It could boost your returns in 2017 and improve your financial outlook in future years.

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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. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.