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What next for shareholders of this year’s small-cap stars?

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With huge gains achieved over the last 12 months, holders of fantasy figure retailer Games Workshop (LSE: GAW) and drinks supplier Conviviality (LSE: CVR) can be forgiven for never wanting 2017 to end. Let’s look at why these stocks have performed so well and speculate on whether this positive momentum can continue in 2018.

Massive gains

Back in January, stock in Nottingham-based Games Workshop traded at 730p. Fast-forward to December and the very same shares change hands for almost 250% more.

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A beneficiary of the weak pound (75% of sales come from outside the UK), the £815m-cap business released a plethora of positive updates during 2017 as it began to reap the benefits of its strategy to focus on its core product and engage with dedicated customers sharing its “Hobby gene“. Even regular, uber-cautious statements from management on the possibility of uncertain trading conditions going forward weren’t enough to stop the share price charging upwards.

While not performing quite as well, Conviviality still handsomely rewarded its owners over 2017. Starting off at 220p, the shares had almost doubled in value by October. Despite falling back slightly by the end of the year, a rise of 80% in just 12 months is still anything but shabby.

In its most recent trading update for the six months to 29 October, the Crewe-based business revealed a 9.2% rise in group revenues to £836m compared to the same period in the previous year, with decent growth seen in all of the company’s business units (Direct, Retail and Trading). According to CEO Diana Hunter, AIM-listed Conviviality underwent “significant change” over the period, introducing systems designed to “future proof” the business. 

The question, however, is whether either is worthy of investment at their new, far higher valuations?

Still worthy buys?

In December’s half-year update, Games Workshop estimated that sales of around £109m had been achieved over the period to 26 November with operating profit hitting roughly £38m. When it’s considered the latter was pretty much the same for the whole of the previous financial year, the good times certainly look set to continue for a while yet.  

Although it might be said a lot of this news will already be priced in, I wouldn’t be surprised if many investors stuck with the company for now, particularly given the reasonably high probability of decent trading over the festive period. A price-to-earnings (P/E) ratio of just under 16 also doesn’t feel excessive even if, admittedly, its niche market makes comparing Games Workshop to other stocks somewhat problematic. So while its multi-bagging days might be over, I believe it’s still a great pick for those hunting quality companies offering sizeable dividends.

Conviviality’s outlook also continues to look positive with the company performing in line with management expectations. That said, the firm has stated that full-year profit will be more weighted to the second half of the year as a result of the phasing in of cost savings. 

Trading at 17 times forecast earnings and sharing a similar market capitalisation to Games Workshop, Conviviality is certainly not the bargain it once was. Nevertheless, one could argue that recent earnings growth — coupled with its diversified operations and a solid 3.5% dividend yield — still make it an appealing option, even if the likelihood of it replicating its performance in 2018 remains fairly low.

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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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