3 buy-and-hold small-cap growth stocks for October

Edward Sheldon looks at three exciting smaller companies that offer huge long-term potential.

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In the last week, I have profiled a selection of large-cap dividend stocks and large-cap growth stocks that I believe could be excellent picks for long-term, buy-and-hold investors. Today, I’m turning my attention to the small-cap area of the market. Here’s a look at three small-cap growth stocks that I think could make excellent buy-and-hold investments right now.

K3 Capital

K3 Capital (LSE: K3C) is a leading business sales and brokerage firm that acts for businesses valued between £50,000 and £100m. With a market cap of just £126m, this is certainly a small company, but given the speed the group is growing at, I think K3C has the potential to develop significantly in coming years.

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Indeed, full-year results released last month demonstrated that the company has considerable momentum at present. For the year ending 31 May, group revenue rose 53%, earnings per share surged 114% and the full-year dividend payout was increased 56% – an impressive performance. Furthermore, the company advised that for FY2019, all three of its businesses have started the year strongly and that the group as a whole is “trading ahead of market expectations.”

K3C shares are up 83% over the last year, yet have pulled back around 25% since April to now trade on a trailing P/E ratio of 21.1. At that price, I think value is on offer.

Clipper Logistics

Another small-cap stock that I think warrants a closer look right now is £302m market cap Clipper Logistics (LSE: CLG). The company is an innovative logistics company that has grown significantly in recent years and counts Asos, John Lewis and Asda among its customers. 

While full-year results released in July looked quite robust with revenue rising 17.6% and earnings per share climbing 13.6%, investors dumped the stock after the company advised it was bringing “an element of caution” into its planning due to the wider forces affecting the UK retail sector. Yet I think the sell-off has been overdone, because top-tier directors have been loading up on shares recently, suggesting that they have confidence in the outlook.

At the current share price of 304p, Clipper trades on a forward P/E of 17.5 and offers a prospective yield of 3.3%. Those metrics look attractive, in my view.

Somero Enterprises

Lastly, check out £217m market cap Somero Enterprises (LSE: SOM), which produces laser-guided equipment that assists in the installation of concrete slabs, and has operations in the US, Europe, China, the Middle East and Australia.

Somero shares have had a good run recently and are up more than 20% since I last covered the company in 2017. But with the stock trading on a forward P/E of 13.8 at present, I believe there’s plenty more to come from this exciting smaller company.

Recent interim results certainly looked solid, with revenue rising 6%, cash flow from operations jumping 31% and diluted adjusted earnings per share surging 20%. A 100% increase in the interim dividend was another highlight. It’s also worth noting that Somero has practically no debt and has generated an average return on equity of 35% over the last three years.

Overall, I see a great deal of long-term potential in Somero Enterprises.

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Edward Sheldon owns shares in K3 Capital and Clipper Logistics. The Motley Fool UK has recommended Somero Enterprises, Inc. 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.

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.

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