3 under-the-radar small-cap stocks hitting all-time highs. Buy, hold or sell?

Paul Summers picks out three market minnows all experiencing excellent momentum.

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

One way of making it big in the stock market is to find and buy promising small companies before the herd arrives. The trick is knowing when the latter has happened and then making an informed decision on whether to buy more, begin to sell or just continue holding.

With this in mind, here are three market minnows that have all been setting new share price highs recently. 

High flyers

£220m cap scientific instruments business Judges Scientific (LSE: JDG) has been in excellent form of late, rising 46% since January. If 2018’s numbers are anything to go by, there could be more to come.

Thanks to strong demand and foreign exchange tailwinds, revenues grew 9% (5.5% of which was organic) to a record £77.9m last year and adjusted operating profit jumped 35% to £14.7m.   

According to Chairman Alex Hambro, the new financial year has “started well” and the firm is “well positioned to face the uncertain macro and political climate“. The recent 25% hike to the total dividend backs this up this statement. 

Assuming analysts are correct in predicting a 23% rise in earnings per share in 2019, Judges’s shares are changing hands on a P/E of just under 19. With rising returns on capital and improving free cash flow, I rate the shares as a cautious ‘buy’.  

Despite its memorable ticker, I still think music hardware and software product supplier Focusrite (LSE: TUNE) is a company that the majority of retail investors won’t have heard of. Considering its share price is now over 70% higher than it was two years ago, however, this market leader is clearly getting more attention than it used to. 

It’s not hard to see why.

April’s half-year figures (covering the six months to the end of February) included a 4.1% rise in revenue to £40.4m and a very encouraging 22.6% jump in pre-tax profit to £7.2m. The interim dividend was lifted 20% and the company had net cash of a little over £26m on its balance sheet at the end of the period. 

Trading on 29 times forecast earnings, prospective buyers of Focusrite’s stock will need to be confident that management’s strategies to deal with import tariffs in the US and ongoing economic and political uncertainty will be sufficient to stop the share price losing momentum. A number of product launches planned for this year should also help.

That said, I wouldn’t be tempted to jump on board at this price. For those already holding, banking some profit feels prudent.

Liontrust Asset Management (LSE: LIO) is my final pick of firms whose shares are hitting all-time highs. 

Despite some in the industry experiencing problems of late, shares in the business have been solidly rising for the last three years. Had you purchased Liontrust back in June 2016, you’d have a stonking gain of around 180% now.

As my Foolish colleague Harvey Jones reported recently, the company’s latest set of results were certainly encouraging considering “recent market bumpiness“. 

Compared to peers, Liontrust’s shares still look reasonably priced on 14 times predicted earnings. A forecast 3.9% yield makes it the highest dividend payer of the three covered today and it also has net cash on its balance sheet. 

While nothing can be guaranteed when it comes to future performance, particularly for companies whose success is so reliant on general market sentiment, I reckon the shares could be another cautious buy.

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 recommended Focusrite and Judges Scientific. 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

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »