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Two small-cap growth stocks that could help you quit your job

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While it’s relatively easy to make slow, steady, long-term gains in the stock market by investing in a broad selection of large, well-known companies, if you’re looking for life-changing gains, it can pay to invest a small proportion of your portfolio in fast-growing small-cap stocks that are a little more under the radar.

Today I’m looking at two companies that have delivered three-year gains of 170% and 330% respectively for investors. Are you seeing these kinds of gains in your portfolio?

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DotDigital (LSE: DOTD) is a company I have owned for several years now. I bought the shares back in 2013 for around 24p, and today they change hands for 95p, so I’ve made quite a decent profit. However, I won’t be selling just yet, as I believe there could be more gains to come in the medium-to-long term.

Founded in 1999, dotDigital is a leading provider of tools for digital marketing professionals. Its core product ‘dotmailer’ is a handy piece of software that enables clients to effortlessly construct marketing emails. It’s used by thousands of businesses, including Barbour, Screwfix and Crystal Palace Football Club.

While DOTD has experienced powerful growth in recent years, investors have been concerned this year that new General Data and Protection Regulation (GDPR) would derail the group’s growth. As a result, the shares have spent much of 2018 in a short-term downtrend.

However, it looks like these fears were overdone, as the company advised in a trading update last week that revenues for the year ended 30 June had grown approximately 35% to £43.1m with recurring revenue surging 41%, and that customer numbers had grown by 26% over the year. It also said that it had seen “no material impact” on either email volumes or recurring revenues from existing clients, following GDPR implementation. The shares have jumped 30% in less than a week after the update, putting an abrupt end to the downtrend.

Looking at these results, it’s clear that Dotdigital still has considerable momentum, and trading on a forward P/E ratio of 24, I think they still offer plenty of value. I’ll be holding on for higher profits.

Learning Technologies

Another small-cap technology stock that I have my eye on is Learning Technologies (LSE: LTG), which specialises in providing technology-driven workplace learning solutions.

With a client base that is becoming increasingly populated with national governments and blue-chip firms, the group has delivered some pretty impressive growth in recent years, with sales rising from £15m to £52m over the last three years alone. And City analysts expect this powerful growth to continue in the near term with sales of £101m anticipated this year, after the group recently completed the “transformational” acquisition of PeopleFluent Holdings, a leading provider of cloud-based integrated recruiting, talent management and compensation management solutions.

A trading update released this morning has confirmed that the firm’s financial performance for the six months to 30 June 2018 is “in line” with market expectations. Management advised that revenues for the period are expected to be at least £27.3m (excluding the recent acquisition of PeopleFluent), a rise of 27% on last year, with organic revenue on a constant currency, like-for-like basis increasing approximately 10%.

I like the long-term story here. However, the shares do look a little pricey at present, trading on a forward P/E of 44. As such, I’ll be keeping the stock on my watchlist for now.

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Edward Sheldon owns shares in dotDigital Group. The Motley Fool UK has recommended dotDigital Group. 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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