2 secret small-cap growth stocks I think you need to know about

These market minnows have been quietly making their owners a lot of money. Paul Summers take a closer look.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

As someone with a relatively high risk appetite when it comes to investing, I’m always on the lookout for small, fast-growing companies that could deliver significant capital gains over time. All the better if these businesses also happen to be flying under most market participants’ radars.

While the past is certainly no guide to the likelihood of more success in the future, here are two that have caught my eye recently.

Star performer

I’d bet that most retail investors haven’t heard of £180m cap, AIM-listed Bioventix (LSE: BVXP). Assuming the company is able to continue performing as it has over the last few years, however, this could be all set to change. 

For background, it develops and supplies antibodies that are then used in blood testing machines in laboratories and hospitals. These tests are employed in fields such as fertility, cancer and heart disease.

Although the company has been fairly quiet over the last few months, October’s results for the full year to the end of June were hugely encouraging. Revenue jumped 21% to £8.8m with pre-tax profits climbing 19% to £6.9m.

Those who like to see strong balance sheets may also like to know that Bioventix was debt-free and had £7m in cash when these numbers were announced.

While dividends aren’t of much interest to a lot of growth investors, it’s worth mentioning that the small-cap returned 61p per share to holders last year — a near 20% increase on 2016/17. There was also a special dividend of 55p per share.

Perhaps unsurprisingly, Bioventix’s share price has rocketed almost 75% over the last year. Had you bought the shares when the company first listed back in 2014, you’d have multiplied your money well over five times

The only negative with this — at least for prospective buyers — is that the stock now trades on a seriously expensive valuation of 32 times forecast earnings. 

Would I buy the shares now? Probably not. The general sell-off in equities towards the end of 2018 was a reminder of the dangers of paying too much for any company, regardless of its quality. With Brexit coming next month, the possibility of stock markets becoming choppy once again is real.

That said, if markets do dip, I’m certainly not ruling out buying a slice of Bioventix at a better price.

High confidence

Another company that’s been in fine form recently is D4t4 Solutions (LSE: D4T4). Ignore the questionable name for a second. Over the last year, the data solutions provider’s valuation has increased 55%.

November’s half-year results showed evidence of strong revenue growth. At just under £14m, this was almost 200% higher than over the same period in the previous year. The company also reported an adjusted pre-tax profit of £3.35m compared to a £380,000 loss in 2017.  

Commenting on the company’s outlook, CEO Peter Kear reflected that the business had “a strong pipeline of opportunities” and that D4t4 was looking forward to the rest of the year “with a high degree of confidence“. 

Interestingly, unlike Bioventix, the stock isn’t all that pricey for a business experiencing such growth — a little under 19 times earnings for the current year (ending 31 March).

Dividends are fairly negligible at this point (a yield of 1.2%) but these are rising fast.  The interim dividend was raised 12% to 0.7p per share. There’s also no debt and a solid cash position (just over £12m at the half-year point).

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 assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. 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.

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

1 Warren Buffett stock I’m buying now

Coca-Cola is the fourth-largest holding in Warren Buffett’s Berkshire Hathaway. I’ll explain why I’m following Buffett and buying more.

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

I bought 4,403 Lloyds shares in June and 4,856 in September. Here’s what they’re worth now

Harvey Jones thought he was bagging a FTSE 100 bargain when he bought Lloyds shares on two occasions last year.…

Read more »

Young woman holding up three fingers
Investing Articles

I’m itching to buy these 3 hidden FTSE gems in a Stocks and Shares ISA

Harvey Jones is keen to add these three FTSE 100 companies to his Stocks and Shares ISA before April. Only…

Read more »

Close up of a group of friends enjoying a movie in the cinema
Investing Articles

How I’d try and turn just £1 a day into a fabulous £54,485 passive income for life

By investing small, regular sums in FTSE 100 shares I can potentially generate a huge passive income stream. It won't…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

I’d aim for a million buying under a dozen shares

Christopher Ruane explains why less could be more when it comes to building a share portfolio if he wants to…

Read more »

Investing Articles

Rolls-Royce shares are up over 1,000% since 2020! Am I too late to buy?

Rolls-Royce shares now cost over tenfold what they did in the firm's 2020 rights issue. Our writer thinks they may…

Read more »

Investing Articles

1 top UK growth stock for my tech portfolio in 2024

Up 30% in just one year, this growth stock looks positioned to continue on the path of substantial gains, according…

Read more »

Buffett at the BRK AGM
Investing Articles

I’d follow Warren Buffett to target effortless passive income

Warren Buffett knows a thing or two about building passive income streams. By learning from the Sage of Omaha, so…

Read more »