2 small-cap growth stocks that could make you brilliantly rich

Royston Wild reveals two small-caps with improving earnings momentum.

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LoopUp Group (LSE: LOOP) was one of the standout performers in Wednesday business, its share price rocketing 16% following an ebullient reception to full-year numbers.

The company, which provides remote meeting services, advised that revenues bulged 44% during the six months ending June, to £8.65m. As a result, EBITDA increased 81% to £1.61m.

Chief executive Steve Flavell said: “We are very pleased to report continued strong performance in our 2017 interim results. LoopUp is benefiting from significant momentum and the 44% growth in LoopUp revenue exceeds FY2016 and FY2015 growth rates both as reported on a pound-sterling basis and on a constant currency basis.” Its revenues at stable exchange rates rose 37.2% last year versus 31% in both 2016 and 2015.

Like-for-like gross margins have improved, the business has developed its profitability at both EBITDA and operating levels and our metrics for new business acquisition efficiency and business retention remain strong,” Flavell added.

The meetings mammoth witnessed particularly strong demand growth from across the Atlantic, with sales in the US now accounting for 52% of the group total. The UK is responsible for 36% of aggregated turnover, while LoopUp sources 10% of sales from mainland Europe and 2% from its other global territories.

And the business has kept the momentum going since the period end, Flavell advising: “The second half of 2017 has started encouragingly with some major new customer wins set to roll out, and we remain confident for the full financial year as well as in our ability to deliver growth beyond that.

It attributes its continued positive performance and outlook to its “highly differentiated product strategy in the large £5bn market for outsourced remote meetings services,” he added.

Earnings set to explode

The City’s army of analysts also believe that the future looks extremely perky for the communications play, and have pencilled in earnings expansion of 167% and 332% in 2017 and 2018 respectively.

A subsequent forward P/E ratio of 142 times may look expensive on paper. But I would argue that a PEG reading of 0.9, below the bargain-benchmark of 1, suggests that LoopUp is very attractively priced relative to its growth outlook.

Today’s surge to new record tops means that the London firm has seen its share price swell almost 90% since the start of the year. And I expect the share price to continue marching higher as sales march skywards, and particularly in North America.

Record maker

Gooch & Housego (LSE: GHH) is another London-listed stock expected to deliver stunning earnings growth right now and in the future.

In the year to September, the number crunchers have chalked in bottom line expansion of 10%. And an extra 16% increase is expected next year.

This optimism is not a great surprise given that revenues continue to boom. Robust demand from the telecoms, precision inspection equipment and microelectronic manufacturing segments drove revenues 36% higher during October-March, to £52.2m. And the company is throwing huge sums at product development and M&A to keep turnover on an upward slant.

Whilst Gooch & Housego may boast an elevated earnings multiple of 23.8 times, I reckon the company’s encouraging sales momentum (its order book stood at a record £66.6m as of March) warrants such a premium rating.

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Gooch & Housego. 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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