Could these ‘secret’ small-cap stocks help you achieve financial independence?

Paul Summers take a closer look at two under-the-radar small-cap shares and their potential to help you quit the rat race early.

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There are a number of ways to achieve financial independence through the stock market. If you’re looking for the fastest route, however, it’s arguably far better to devote your efforts to hunting the best small-cap opportunities given their potential to grow at a faster clip than your typical FTSE 100 beast.

Here are a couple of minnows that still appear to be flying under many investors’ radars.

On track

Reporting some positive interim numbers this morning was Leeds-based Tracsis (LSE: TRAC) — a business that provides software to the transportation industry.

In the six months to the end of January, revenue increased 16% to just over £18m with statutory pre-tax profit accelerating 33% to £2.4m.

Over the reporting period, Tracsis began delivering on a big deal for its software with a “major” UK train operator. It also secured the renewal of a contract with a “global engineering company” and made progress across the pond with its remote condition monitoring technology (which can help to detect faults). Since the end of the interim period, the company has also made a couple of acquisitions, Travel Compensation Services Ltd and Delay Repay Sniper Ltd.

A suitably bullish CEO John McArthur reflected that the performance on all key metrics over H1 had been “comfortably ahead of the previous year” and that management was “confident” full-year numbers wouldn’t disappoint the market. 

For those who like to own companies in rude financial health, Tracsis more than hits the spot. It had £18.5m at the end of January, in contrast to the £12.7m at the same point in 2017. There’s no debt to worry about and free cash flow continues to look excellent.

Before today, analysts were forecasting a 78% rise in earnings per share for the current year, giving the company a price-to-earnings (P/E) ratio of 22. That’s not cheap but, given the quality of the business, it might just be worth paying.

Time to buy?

Also reporting today was global media and entertainment company Time Out Group (LSE: TMO).  Shares in the small-cap have failed to capture investors’ interest since coming to the market in June 2016 and reaction to today’s annual results suggests this apathy might continue. 

As a result of underlying growth and contributions from franchisee acquisitions in Australia and Spain, group revenue increased 19% year-on-year to £44.4m. The bulk of this (£38.4m) came from its Digital division with a 57% increase in e-commerce over the reporting period, leading CEO Julio Bruno to state that Time Out was developing into a “transactional business”.

Having welcomed 3.6m visitors over the period, revenue at the company’s Market division soared by 62% to £6m. With a lease agreement now signed, Time Out hopes to replicate the success of its site in Lisbon with one in New York. Additional markets are planned for Miami, Chicago and Boston. 

So, is now the time to buy? Much of that will depend on how you feel about owning shares in a business that is still to turn a profit. Due to higher costs, Time Out revealed an adjusted EBITDA loss of £14.2m today —  34% higher than the previous year but in line with expectations. The 28.8m of cash on the company’s balance sheet was also over 40% lower than at the same time last year.

Personally, I’ll be keeping Time Out on my watchlist for now.

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 considered so you should consider taking independent financial advice.

Paul Summers has no position in any of the share mentioned. The Motley Fool UK has recommended Tracsis. 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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