2 small-caps with 25%+ upside after today’s results

These two smaller companies have bright futures.

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With the FTSE 100 trading at an all-time high, investors may be finding it difficult to find stocks with over 25% upside. After all, valuations are higher for many companies than they have been in recent years. However, there are always stocks which combine bright futures and fair valuations. Here are two smaller companies which offer just that, as well as the potential to record share price rises of at least 25% over the medium term.

A solid growth stock

Accrol (LSE: ACRL) may not be a household name, but it continues to deliver consistently high growth figures. In today’s interim results, the tissue converter posted a rise in sales of 8.8% and an increase in gross profit of 5.6% for the first half of the year. It also announced a maiden interim dividend of 2p per share, which shows that it has confidence in its medium-term outlook.

Its successful IPO in June 2016 raised £63.5m and it continues to have strong growth prospects. Its market share of the discount tissue sector has increased to around 50% following significant contract wins with Booker, Poundstretcher and Lidl. In fact, there are early indications that the contract with Lidl will deliver more than £10m in annual revenue. And with UK consumers likely to trade down to budget options as inflation rises this year and wage growth fails to keep pace, demand for Accrol’s products could increase significantly in the coming months.

Looking ahead, earnings growth of 73% is forecast for the current year, followed by further growth of 17% next year. This puts Accrol on a price-to-earnings growth (PEG) ratio of 0.6, which indicates that there’s at least 25% upside on offer. Allied to this is a consistent and robust business model, which makes the stock of interest to value and growth investors alike.

A dirt cheap cyclical stock

Also reporting today was recruitment company Staffline (LSE: STAF). It expects to deliver results for the full year which are in line with market expectations. Demand within the staffing business has remained robust throughout the second half of the year, while the PeoplePlus division has also delivered impressive results.

Clearly, the outlook for the UK and European economy is challenging and this is reflected in Staffline’s forecasts. It’s expected to grow its bottom line by just 3% in 2017, which is around half the wider market growth rate. However, its uncertain outlook appears to be adequately priced-in, with the company having a price-to-earnings (P/E) ratio of 7.5. As such, a 25% rise in its share price would leave it with a P/E ratio of 9.4. This would still represent good value for money.

As well as growth potential, Staffline also offers a yield of 3.1%. Dividends are covered 4.3 times by profit, which shows that they could move significantly higher over the medium term and still leave the company in a sound financial position.

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 has no position in any shares mentioned. The Motley Fool UK has recommended Booker. 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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