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

Bilaal Mohamed uncovers two AIM-listed minnows with huge growth potantial.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

UK office services provider Restore (LSE: RST) this morning announced its interim results for 2017 revealing good operational and financial progress during the first half of the year. There was strong organic growth right across the group, with its shredding business performing better than expected following last year’s acquisition of PHS Data Solutions, which has now been successfully integrated.

Strong growth

The AIM-listed group continued its strong growth in turnover with revenues 57% higher than the previous year at £86.9m and adjusted pre-tax profits up 59% to £15.3m, compared to £9.6m for the same period a year earlier. However, much of the strength of these figures was due the impact of the acquisition of PHS Data Solutions in August 2016. Nevertheless, organic growth across the business was 7% over the period. The positive results sent the shares 4% higher by mid-afternoon.

Restore provides document management and relocation services to offices and workplaces in both the public and private sectors. The Document Management division comprises document storage (both physical and cloud storage), shredding, and scanning businesses, while the Relocation division is dominated by Harrow Green, the UK market leader in office relocation. Both divisions share a very similar customer base.

Further acquisitions

Restore’s strategy is to grow both organically and through further acquisitions, and has so far acquired seven small businesses since the start of 2017. The group has now acquired more than 30 companies of all sizes since 2010, taking it from a market capitalisation of just £8m to £597m.

The business’s success doesn’t come cheap, however. After a near-50% share price gain over the past 12 months Restore is now trading on a P/E rating of 24. However, this drops to 21 next year, and in my view still offers good value given the attractive growth prospects.


Meanwhile, another AIM-listed business that I believe has exciting growth prospects is Telford Homes (LSE: TEF). The London-focused residential property developer announced record full-year revenues earlier this year thanks to robust demand, with pre-tax profits of £34.1m exceeding market expectations.

Since then the Hertfordshire-based group has achieved further momentum in the build-to-rent sector and is assessing a number of new development opportunities to add to its £1.5bn development pipeline. According to management, the business also remains on track to exceed £40m in pre-tax profits for the current year to March 2018, and £50m the following year, having already secured over 80% of the anticipated gross profit for 2018 and over 60% for 2019.

Telford’s shares have performed well of late, rising in value by more than a quarter over the past year, but are still trading far too cheaply at just eight times forward earnings. Dividend payouts have also been rising rapidly in recent years, with a prospective yield of 4.3% enough to attract the attention of income investors as well as those looking for capital growth.

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.

Bilaal Mohamed 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.

More on Investing Articles

Close-up of British bank notes
Investing Articles

£8 per year in extra income for life, for each £100 invested today? Here’s how!

Christopher Ruane explains how he would aim to set up extra income streams for the rest of his life by…

Read more »

Photo of a man going through financial problems
Investing Articles

With a £20K Stocks and Shares ISA, I’d target £1,964 in annual dividends like this

With an annual passive income target close to £2,000, our writer explains how he'd put a £20K Stocks and Shares…

Read more »

Illustration of flames over a black background
Investing Articles

Down 63% in 2024, what’s going on with the Avacta (AVCT) share price?

2024 has been a difficult year for many companies in the biotechnology sector, with the AVCT share price down heavily.…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Here’s how I’d invest £800 the Warren Buffett way!

Christopher Ruane learns some lessons from super-investor Warren Buffett he hopes could improve his own stock market performance.

Read more »

British Isles on nautical map
Investing Articles

Michael Burry just bought 175,000 shares in this FTSE 100 company

Scion Asset Management announced a $6.5bn stake in BP this week. But what could Michael Burry be seeing in an…

Read more »

Young Asian woman holding a cup of takeaway coffee and folders containing paperwork, on her way into the office
Investing Articles

£5,000 in savings? Here’s how I’d aim to start making powerful passive income today

With a cash lump sum to invest, this Fool lays out how he'd start making passive income. He also details…

Read more »

Investing Articles

Just released: our 3 top small-cap stocks to consider buying before June [PREMIUM PICKS]

Small-cap shares tend to be more volatile than larger companies, so we suggest investors should look to build up a…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

My best FTSE 250 stock to consider buying now for passive income while it’s near 168p

This is a rare stock with a growing underlying business and a fat dividend yield – it’s worth consideration for…

Read more »