Are 88 Energy Ltd, Restore plc and M&C Saatchi plc the 3 hottest small-caps around?

Should you pile into these three smaller companies right now? 88 Energy Ltd (LON: 88E), Restore plc (LON: RST) and M&C Saatchi plc (LON: SAA).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Document storage specialist Restore (LSE: RST) has performed exceptionally well of late. In fact, its shares have soared by 17% in the last year and with it having an excellent track record of growth, it seems to offer a highly enticing risk/reward ratio.

Looking back at the last four years, Restore has been able to increase its bottom line at a double-digit rate each year. This is due to its excellent business model, which benefits from a relatively high amount of repeat business and offers a high degree of stability and consistency. And with Restore forecast to record a rise in earnings of 9% this year and 11% next year, it would be of little surprise for investor sentiment towards the stock to improve.

With Restore trading on a price-to-earnings growth (PEG) ratio of 1.7, it appears to offer significant upward rerating potential. As such, now seems to be an excellent time to buy a slice of the company – especially with the economic outlook for the UK being rather uncertain.

Growth and more growth

Similarly, advertising specialist M&C Saatchi (LSE: SAA) has recorded excellent growth of late, with its shares being up by 13% in the last three months. As with Restore, M&C Saatchi has a strong track record of growth and its bottom line has risen by over 8% per annum during the last five years. With further growth forecast for the next two years, M&C Saatchi’s PEG ratio stands at just 1.2, which indicates that its capital gains prospects are high.

Clearly, M&C Saatchi’s business model is relatively cyclical and while there are a number of risks facing the UK and world economies, it seems to be well-prepared to overcome them. Notably, it’s relatively well-diversified, has a strong management team and with a sound balance sheet, M&C Saatchi looks set to deliver relatively resilient growth over the medium-to-long term. Therefore, now seems to be a logical time to buy it.

Risks and rewards

Meanwhile, 88 Energy (LSE: 88E) is a much higher-risk play than either Restore or M&C Saatchi. That’s at least partly because the company has no revenue at the present time and is therefore entirely reliant on news flow. As has been the case so far in 2016, this could be positive, but it could equally cause a period of disappointment for the company’s investors following 88 Energy’s share price rise of 300% since the turn of the year.

However, 88 Energy is also riskier than Restore and M&C Saatchi because the oil and gas sector’s future outlook remains highly uncertain. So, while 88 Energy could be of interest for less risk-averse investors and may go on to deliver further share price gains, for most investors the likes of Restore and M&C Saatchi hold vastly more long-term appeal.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of M&C Saatchi and Restore plc. 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.

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

1 Warren Buffett stock I’m buying now

Coca-Cola is the fourth-largest holding in Warren Buffett’s Berkshire Hathaway. I’ll explain why I’m following Buffett and buying more.

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

I bought 4,403 Lloyds shares in June and 4,856 in September. Here’s what they’re worth now

Harvey Jones thought he was bagging a FTSE 100 bargain when he bought Lloyds shares on two occasions last year.…

Read more »

Young woman holding up three fingers
Investing Articles

I’m itching to buy these 3 hidden FTSE gems in a Stocks and Shares ISA

Harvey Jones is keen to add these three FTSE 100 companies to his Stocks and Shares ISA before April. Only…

Read more »

Close up of a group of friends enjoying a movie in the cinema
Investing Articles

How I’d try and turn just £1 a day into a fabulous £54,485 passive income for life

By investing small, regular sums in FTSE 100 shares I can potentially generate a huge passive income stream. It won't…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

I’d aim for a million buying under a dozen shares

Christopher Ruane explains why less could be more when it comes to building a share portfolio if he wants to…

Read more »

Investing Articles

Rolls-Royce shares are up over 1,000% since 2020! Am I too late to buy?

Rolls-Royce shares now cost over tenfold what they did in the firm's 2020 rights issue. Our writer thinks they may…

Read more »

Investing Articles

1 top UK growth stock for my tech portfolio in 2024

Up 30% in just one year, this growth stock looks positioned to continue on the path of substantial gains, according…

Read more »

Buffett at the BRK AGM
Investing Articles

I’d follow Warren Buffett to target effortless passive income

Warren Buffett knows a thing or two about building passive income streams. By learning from the Sage of Omaha, so…

Read more »