To say that software provider Craneware (LSE: CRW) has performed for investors is something of an understatement.
In the five years to yesterday, the shares had climbed well over 450% to 2,290p. In comparison, the value of FTSE 100 has increased just 15%. Clearly, investing in the latter through an index tracker or exchange-traded fund would have been less risky thanks to capital being deployed across a large number of businesses rather than only one. Nevertheless, Craneware shows just how powerful an impact buying quality, small companies can have on your wealth.
Today’s results for the year to the end of June suggest this momentum could continue for some time yet.
An “outstanding” year
Revenue increased 16% to $67.1m with five “significant contract wins or contract extensions” allowing the company to record a 100% increase in new sales over the year. Pre-tax profit moved 12% higher to $18.9m.
With numbers like these, it’s understandable if CEO Keith Neilson was in a bullish mood. According to him, Craneware’s “outstanding” last year is “by no means the end of the journey“. Possessing a huge quantity of healthcare-related data and a broad customer base, management now believes the company has the potential to “sit at the heart of the move to value-based economics“.
Thanks to a record sales pipeline and growing engagement with its new products (such as its Trisus cloud-based platform), it’s a struggle for market participants to argue against this — which explains why Craneware’s stock was up over 13% this morning.
To be clear, a seriously high valuation of 52 times earnings in the current year makes this a stock for only the most confident of growth investors. Encouraging as the 20% rise to the total dividend (to 24p per share) is, a predicted yield of just 1% for 2018/19 before today also means new owners will be nearly wholly-reliant on further share price gains.
Nevertheless, the importance of having reliable data should mean that Craneware’s products are unlikely to be ditched on a whim, giving the Edinburgh-based business the kind of revenue visibility that many businesses would kill for. This fact, combined with its strong financial position — $52.8m in cash at the end of June — mean that I remain a firm fan of the stock.
Even more profitable
While Craneware has been a winning investment, it still has some way to go to rival the success of carbonated mixer supplier Fevertree (LSE: FEVR).
Since listing on the market back in November 2014, the stock has moved from 165p to a quite remarkable 3,763p, highlighting how nimble, marketing-savvy new entrants can exploit a gap in an industry and achieve massive success in a relatively short amount of time.
For how long this kind of form can continue is anyone’s guess (I’ve already been very wrong on this stock). With a valuation of almost 79 times forecast earnings, there’s clearly little room for error. Should the company’s efforts to crack the US market not come off, there’s a chance the shares could fall sharply.
Not that this is putting investors off just yet. The fact that “significant institutional demand” led founders Charles Rolls and Tim Warrillow to sell 3,000,000 shares (or 2.6% of Fevertree) for 3,450p a pop back at the start of August is evidence of the company’s enduring popularity. This disposal was 50% more than originally intended. Since then, the stock is already up 9%.
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Craneware. 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.