Could these two small-caps set you on the path to financial freedom?

Edward Sheldon looks at two under-the-radar small-cap opportunities. Is now the time to buy?

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Today, I’m looking at two under-the-radar smaller companies. Could these stocks boost your personal balance sheet?

Premier Technical Services

Premier Technical Services (LSE:PTSG) has been a high flyer over the last two years with shares in the facilities management specialist jumping from around 58p to 115p, a gain of nearly 100%.

The company focuses on the high margin niche area of facade access and fall arrest equipment services, operating through four key divisions: access & safety, electrical services, high level cleaning and training solutions. Founded in 2007, the group services over 150,000 buildings across the UK in a wide range of industries.

Through a combination of acquisitions and organic growth, revenue has surged higher over the last five years, climbing from £9m in FY2011 to £39m last year. Net profit has increased from £0.5m to £2.3m in this time. City analysts forecast revenue to climb 16% to £45.6m this year, and earnings per share of 8.25p, placing the company on a forward looking P/E ratio of just 13.9.

Management is upbeat about the future, recently stating: “The board is confident that the business is in a strong position to continue to grow both organically and through carefully selected acquisitions, which seek to achieve sector dominance in our chosen areas of operation.

While this all sounds great, the one thing to watch here is the company’s operating cash flow, which over the last two years, has been negative. A drill-down into the financials reveals that accounts receivable hav risen from £1.6m in FY2014 to £6.1m last year, which is not ideal. Indeed, an increase in accounts receivable is often viewed as an accounting red flag as it indicates that cash is not coming through the door. This is clearly something to keep a close eye on and for this reason, I won’t be looking to buy the stock just yet.

Emis Group

One company that does look quite interesting in my opinion, is Emis Group (LSE: EMIS).

Emis specialises in healthcare software, running IT systems for GPs, hospitals and pharmacies and assisting medical practices by digitising patient records. With the NHS constantly looking to drive down costs and improve efficiency, demand for its products should remain robust in my view.

While revenue has jumped from £73m five years ago to £159m last year, growth has slowed recently, and as a result, it appears that some investors have jumped off the bandwagon. The shares have pulled back around 20% over the last 18 months.

Has that created an investment opportunity? 

Emis released a trading statement for the six months ended 30 June this morning. While details were brief, management said revenue was “slightly ahead of the comparative period as the group continued to benefit from growing recurring revenue, strong market shares and good momentum in its order books and pipelines.” New CEO Andy Thorburn commented that he believes that Emis can “continue to generate good levels of growth in the years ahead, despite the challenging funding environment in the NHS.”

City analysts forecast net profit to surge over 60% this year and have pencilled-in a dividend payout of 25p per share, and with that in mind, on a forward looking P/E ratio of 19, I reckon Emis Group could be worth a closer look for those with a long-term mindset.  

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.

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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