3 top small-cap growth buys for today?

Roland Head takes a look at three overlooked small-caps that could have big growth potential.

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The summer holiday period can be a good time to invest in overlooked small-cap stocks. In today’s article I’ll take a look at the latest updates from three such firms.

Sales beat forecasts

Rail and traffic management software firm Tracsis (LSE: TRCS) says it expects to report sales of more than £32m for the year ending 31 July. That’s significantly above City forecasts of £27.6m.

Tracsis says it has had a strong year.  The group’s core divisions have made good progress and acquisitions have boosted growth elsewhere. Net cash was £11m at the end of the year, despite a £7m net outflow of cash spent on acquisitions.

Earnings are expected to be in line with forecasts of 19.9p per share for last year. Forecasts suggest they will rise by 10% to 22p during the current year.

This puts the stock on a 2016/17 forecast P/E of 23. This may seem expensive, but Tracsis shares rose by 20% last week, after the group announced a breakthrough contract in the US.

If Tracsis can become a major player in the US market, then today’s share price could look cheap within a few years.

These shares could fly

Aircraft leasing specialist Avation (LSE: AVAP) has leased a new Airbus A321-200 to Vietnamese carrier Vietjet. It’s the latest in a series of deals that has seen the group’s profits rise from $0.098 per share in 2010 to $0.24 per share last year.

However, while Avation’s earnings per share have risen by 145% since 2010, the firm’s share price has risen by just 88% since its flotation in October 2010. This means that Avation now trades on a trailing P/E of just 7.3.

One concern among investors is that the group’s net debt of $409.5m is quite high relative to the $518m valuation of the firm’s aircraft fleet.

A second risk is that airline growth may be starting to slow. A fall in fleet utilisation or a rise in interest costs could cause problems for Avation.

City analysts have trimmed their forecasts recently, but still expect earnings per share to rise by 39% to $0.32 this year. This puts Avation on a forecast P/E of just 5.6. If you remain confident about the outlook for air travel, these shares could be worth a closer look.

Rapid sales growth?

Information management group Idox (LSE: IDOX) reported its second acquisition in two months this morning. The firm spent £2m on a digital marketing agency called Rippleffect Studio, whose customers include JD Wetherspoon and Liverpool Football Club.

Idox is hoping to increase annual revenues from £62.6m to £100m over the next few years. Progress so far has been good. Revenue rose by 27% to £37.2m during the first half of this year, while pre-tax profits climbed 110%, to £6.5m.

However, while Rippleffect generated £6.3m of revenue last year, its net profit was just £34,934. Private companies usually try to minimise profits for tax reasons, but Idox shareholders need to make sure their company isn’t boosting sales figures while diluting the group’s profit margins.

Idox shares currently trade on about 19 times 2016 forecast earnings. I’d say that’s about right for now, and would rate the shares as a hold.

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.

Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Tracsis. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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