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2 promising small-cap growth stocks to stash in your ISA

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Risk-tolerant? Some ISA allowance left to spend? So long as you can stand a bit of share price volatility, it can often be more profitable to look lower down the market spectrum. Thanks to their potential to grow faster than your average FTSE 350 company, small-cap stocks have the ability to seriously improve your wealth over a relatively short period of time.

Here are just a couple of such businesses — one of which I already have a position in.

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In rude health

Know a keen cyclist or someone training for a marathon? If so, it’s likely that they’re already aware of (and possibly use) the products of AIM-listed sports nutrition specialist Science in Sport (LSE: SIS)

While the share price hasn’t really budged today, there was nothing in this morning’s final results to cause concern to this market minnow’s owners. Quite the opposite.

Revenues rose by a satisfying 28% in 2017 to £15.6m — significantly outpacing forecasts for the sector as a whole for the fifth consecutive year. Positively, 27% of the former (£900,000) came from new products.

In line with the company’s plans to crack markets such as US and Italy, performance overseas was strong and accounted for 28% of all sales in 2017. Online growth was also stellar. No less than 55% of revenue came from its website last year, outperforming management’s own 50% target.

In addition to the above, I’m also encouraged by the brand partnerships developed over the last year with bodies such as British Cycling and USA Triathlon. The recruitment of Olympic champion swimmer Adam Peaty as an ambassador won’t do any harm and nor will the recently signed three-year deal with one of the biggest football clubs in the world — Manchester United.

Possessing a “strong launch pipeline for 2018” and a sizeable cash position of £16.6m (following a placing last November), I continue to believe that Science in Sport has a promising future, even if ongoing investment means that the company emerged from last year with an underlying operating loss of £1.7m.

Record growth

For something completely different, consider laser-guided equipment manufacturer Somero Enterprises (LSE: SOM). Since I became bullish on the company a year ago, the stock has registered a very satisfying 35% gain. How many FTSE 350 companies do you know that have done something similar?

Last week’s expectation-beating full-year results received a favourable reaction from investors and understandably so. Revenue grew 8% to a record $85.6m over 2017, with adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rising by 14% to $28m. 

Like Science in Sport, Somero reported an increased proportion of sales coming from international markets with new products also contributing “meaningfully” to growth.

2018 could prove to be another great year for the small-cap. In addition to commenting on the company getting ever closer to achieving its $90m revenue target set in 2014, CEO Jack Cooney has also highlighted the £216m cap’s desire to exploit “a broad range of opportunities in related products and new markets“. With this in mind, Somero’s forthcoming move into a new leased facility in Chesterfield at some point in the second quarter to “accommodate growth” looks wholly appropriate.

Taking into account the above, its lack of debt (net cash position of $19m), still-fairly reasonable valuation (15 times earnings) and a recent 40% hike to the total dividend, Somero still warrants attention in my view.

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Paul Summers owns shares in Science in Sport. 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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