Are these 2 micro-cap stocks worth buying after today’s 20%+ gains?

Should you add these two smaller companies to your portfolio?

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Two smaller companies are among today’s top risers. Both of the stocks in question have released updates which show they have delivered significantly improved performance in recent months. As a result, their shares are up by over 20%. However, does this mean it is now too late to buy them? Or, is there still upside potential?

Cheap growth play

Today’s year-end update from building services group T Clarke (LSE: CTO) shows that it is making excellent progress. Its underlying profits for 2016 were substantially ahead of the previous year. As such, it has entered the current year in a strong position in terms of its cash position and order book. In fact, its cash position improved for the fourth successive year and is now £9.2m, which is 39% higher than at the end of the previous year. Similarly, its forward order book has strengthened to £330m, from £300m a year ago.

Looking ahead, T Clarke is expected to record a rise in its bottom line of 20% in the current year. Given that it trades on a price-to-earnings (P/E) ratio of 9.6, this equates to a price-to-earnings growth (PEG) ratio of only 0.5. As a result, further share price gains seem to be on the cards even after today’s 21% price rise.

Of course, the construction industry faces an uncertain future. Brexit could cause inflation to increase via a declining pound and this may hurt demand across the construction sector. However, this risk appears to be sufficiently priced in to T Clarke’s valuation and it seems to offer a relatively wide margin of safety at the present time. So, while gains of the magnitude recorded today may not become commonplace, a significant rise in its share price could take place over the medium term.

An improving technology stock

While T Clarke’s gains are impressive, technology company Ubisense (LSE: UBI) soared by 33% today, following the release of a trading statement. The ‘enterprise location intelligence’ specialist showed continued good progress in 2016 versus 2015, with its sales growth, margins, cost management and order book all ahead of the prior year.

The company’s increased focus on its Real-time Locating Systems (RTLS )software platform has paid off, with the signing of a global software licence deal with a major automotive manufacturer. Other new and extended RTLS product orders were all signed, which positions the company for future growth. Furthermore, it is in compliance with its banking covenants and expects to report a net cash position as of 31 December 2016, which has improved further during the last month, thanks to substantial debtor collections.

Clearly, Ubisense is a small company that lacks the size and scale of larger industry peer, and is therefore relatively high risk. However, its business seems to be moving in the right direction and with investor sentiment on the up, its share price could keep moving higher over the medium term.

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 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.

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