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2 small-cap stocks I’d buy on the next dip

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It’s notoriously difficult to time the market. After all, the short-term price movements of shares contain some random element. Therefore, it’s difficult to state where share prices will move over the coming weeks. However, if the market does experience a dip in the short term, these two smaller companies could be worth buying for the long run.

Robust performance

Reporting on Tuesday was international exhibitions company ITE (LSE: ITE). Its performance in the first six months of the year was in line with management expectations, with revenue up 2% on a like-for-like basis versus the comparative period. It was boosted by some improvement in the economic situation in Moscow, where early sales and marketing initiatives have helped to offset acontinued weaker performance from Central Asia and Turkey.

Looking ahead, ITE expects trading conditions in a number of its regions to be challenging. However, it has recorded bookings which amount to 92% of market expectations for revenue in 2017. Furthermore, they are around 7% ahead of last year on a LFL basis, with trading volume around 1% higher.

Certainly, ITE is highly dependent on the ruble/sterling exchange rate, but it is forecast to record a bottom line rise of 15% in the next financial year. This puts it on a price-to-earnings growth (PEG) ratio of just 1.1, which indicates its shares could rise in future.

In addition, a dividend yield of 2.7% could appeal if inflation moves higher. Brisk dividend growth could lie ahead due to payouts being covered twice by net profit, which could make ITE a sound income play as well as a growth stock.

Consistent growth potential

Also reporting on Tuesday was digital communications company Next Fifteen (LSE: NFC). Its revenue increased 32% in the 2017 financial year, which helped to raise operating profit by 52%. Operating profit was also boosted by a rise in the operating margin of 190 basis points, which shows that the company’s strategy is working well. For example, it has been able to improve the efficiency of a number of its UK businesses while also acquiring high-growth, high-margin agencies.

Looking ahead, further growth in the US could be on the horizon. Next Fifteen was able to deliver organic growth in its US business at a double-digit rate in the 2017 financial year. It also benefitted from the 2015 merger of its agencies in Asia Pacific, Europe and the Middle East. Together, these changes are expected to result in an 8% earnings rise in the next financial year. This puts the company’s shares on a relatively enticing PEG ratio of just 1.8.

Certainly, there may be better times to buy Next Fifteen or ITE. Share prices are generally high at present, with the FTSE 100 being near a record high. As such, a dip in the prices of either stock could be an opportune moment to buy for the long term.

Top growth stock

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Peter Stephens owns shares of Next Fifteen Communications. The Motley Fool UK has recommended ITE Group. 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.