2 small-cap growth stocks I’m watching closely

Bilaal Mohamed reckons these two smaller London-listed companies are well worth keeping an eye on.

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People often ask me what it takes to be a good investor, and my answer is always the same. Along with a whole range of skills and personality traits, I believe the most important virtue of all is patience.

Fighting the urge

Patience is not only required when fighting the urge to take quick profits to the detriment of bigger long-term gains, but also in waiting for the right moment to buy a stock you’re particularly keen on. Seasoned investors who practice the strategy of buying on the dips will know exactly what I’m talking about. It always makes sense to buy shares in a quality company with great long-term prospects, but it makes even better sense when those shares are bought at a more sensible price.

It’s for this reason experienced investors use watchlists to keep an eye on their favourite stocks, ready to pounce when the opportunity presents itself. I’ve found watchlists particularly useful with high-growth small-caps commanding very high earnings multiples. In these instances it can often be prudent to stay on the sidelines and wait for the dips created by short-term sell-offs in order to gain a more favourable entry point.

Be ready to pounce

For instance, surgical and advanced wound care specialist Advanced Medical Solutions (LSE: AMS) has seen a fivefold increase in its share price in as many years, which in turn has left the shares trading on a very expensive earnings multiple of 33. Rather than dismiss the stock altogether, investors might be better advised to monitor the share price over the coming months and be ready to pounce on any signs of weakness.

The AIM-listed firm based in Winsford, Cheshire, continues to deliver strong organic growth supported by research and development (R&D) activities that provide both product innovation and intellectual property. With a rising incidence of both chronic and acute wounds, and predisposing factors such as obesity and diabetes on the increase, I believe the group is very well positioned to continue on its current growth trajectory. This is one small cap growth stock that certainly deserves a place on your watchlist.

High-growth opportunity

It’s a similar story over at fellow AIM constituent Tristel (LSE: TSTL). A number of years of strong growth propelled the company’s share price to record highs of 317p last Autumn, and despite a recent dip, the shares are still trading on a heady price-to-earnings (P/E) ratio of 32 for the current fiscal year to June.

The Cambridgeshire-based group is a manufacturer of infection prevention and contamination control products with its lead technology being a proprietary chlorine dioxide formulation that addresses the human healthcare, contamination control, and animal healthcare markets.

Tristel enjoys high levels of market penetration here in the UK, and this is reflected in last year’s sales figures which revealed that overseas sales grew faster at 43% than domestic sales at 3%, with overseas sales representing 47% of total sales compared to 39% in FY2016.

I believe further international expansion will be a key driver of growth in the coming years, which makes Tristel is another high-growth opportunity you might want to keep an eye on.

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 recommended Advanced Medical Solutions. 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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