These small-cap growth stocks could still make you brilliantly rich

Paul Summers takes a closer look at two small-cap stocks that look likely to continue rewarding investors.

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With buoyant market conditions continuing to raise investor expectations, those focused on growth need to pick their companies more carefully than ever before. Here are just a couple of small-cap stocks that I think stand a better chance than most of delivering terrific returns for holders over the medium term.

Game on

£300m cap, Cambridge-based business Quixant (LSE: QXT) has been a great performer over the last year with shares in the computing platform provider soaring 63%. A quick glance at September’s interim numbers gives some indication of why the stock has become so popular.

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In the six months to the end of June, group revenue rose 38% to just under $57m, with roughly two-thirds of this coming from Quixant’s Gaming division. Even more impressive is the fact that the remaining £19.1m came from Densitron — the electronic screen maker only acquired by the former in 2015.

Although pre-tax profit pretty much doubled to $8.7m from the $4.4m achieved over the first half of 2016, management — rather sensibly — isn’t getting too carried away. While remaining confident on trading for the rest of the 2017 and beyond, Chief Operating Officer Jon Jayal suggested that recent strong demand for its gaming platforms was “out of the ordinary” and unlikely to continue for the full year. In a market where companies frequently over-promise and under-perform, this kind of transparency is really rather refreshing.

At 30 times forecast earnings, Quixant is most definitely not a cheap stock to acquire. Nevertheless, recent results combined with the company’s sound financial position ($1.7m in net cash, comparing favourably to the $100,000 debt on its books as it entered 2017) and consistently high returns on capital suggest it might just be worth paying out for. Or at least adding to watchlists while we await a (somewhat inevitable) pullback in the general market.

In demand

Like those already owning Quixant, holders of small-cap recruitment specialist Harvey Nash (LSE: HVN) have also enjoyed a more-than-decent 2017 so far. Priced at 63p each in January, shares in the £65m cap have since climbed 42% to just under 90p. With 28% and 22% EPS growth expected over the next two years as demand for skilled technicians continues to rise, there could be plenty of upside left to come.

Last week’s interim results for the six months to the end of July revealed a 12.6% jump in revenue and 16.8% increase in pre-tax profit despite a “challenging UK market,” according to CEO Albert Ellis. Record revenue and profits were reported from operations in the Benelux countries with improved trading also seen in the Nordics and Asia Pacific regions.

A transformation plan — implemented during the reporting period and designed to streamline the business, reduce overheads and sort out underperforming offices — was “on track” according to the company. It’s expected to deliver savings of £1.1m this year followed by a further £2.2m in 2018/19. To further support growth, the firm also moved to AIM from the main market after deeming the former to be more appropriate for its scale and acquisition strategy.

Trading at just 8 times earnings for the current year, shares in Harvey Nash look a steal at the current time — even more so when it’s considered that the stock comes with a forecast 4.8% yield, easily covered by profits. While it’s worth keeping an eye on the company’s debt burden, I remain bullish on its prospects for now.

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Paul Summers has no position in any of the 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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