These small caps are smashing the FTSE 100!

Frustrated by low FTSE 100 (INDEXFTSE: UKX) returns? Check out these super small-cap stocks, says Edward Sheldon.

| 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.

In my experience, many people are quite conservative when it comes to stock market investing. Often, they’ll just buy a number of FTSE 100 stocks, or invest in a FTSE 100 tracker, with the goal of generating a return of 6%–8% per year.

There’s absolutely nothing wrong with this approach, of course. However, by allocating a little bit of capital to fast-growing smaller companies, investors could potentially boost their overall portfolio returns. 

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

With that in mind, today I want to highlight two exciting small-cap stocks that have outperformed the FTSE 100 by a wide margin in recent years.

Alpha FX

Alpha FX (LSE: AFX) is one of my favourite smaller companies. While the FTSE 100 has gone backwards over the last two years, AFX has more than doubled investors’ money!

An under-the-radar financial services company, Alpha specialises in providing foreign exchange (FX) hedging services to small- and medium-sized businesses. Combining high-level currency expertise with pioneering technology, the group helps companies manage their FX exposure more efficiently. Clients include high-profile names such as ASOS, Halfords, and Holland & Barrett.

The reason AFX shares have performed so well recently is that the company is growing at a prolific rate. For example, in its most recent half-year results, issued in early September, the group reported revenue growth of 60% and earnings per share growth of 49% (good luck trying to find that kind of growth in the FTSE 100!).

More recently, in an update last week the company advised that trading has continued to be strong and that it expects earnings for the year to be ahead of the market’s expectations.

Are AFX shares priced to buy today? Personally, I’d wait for a pullback before buying. Given that the share price is up nearly 40% in two months, I think there may be better buying opportunities ahead if you’re patient.

Impax Asset Management

Another small-cap stock that has outperformed the FTSE 100 by a significant margin is Impax Asset Management (LSE: IPX). It’s an asset management firm that specialises in sustainable investments – a huge growth area. Over the last two years, its share price has risen around 76%.

Like Alpha FX, Impax has grown at a rapid rate in recent years. For example, between its fiscal year (FY) 2015 and FY2018, the group’s net profit climbed from £3.6m to £11.4m, which represents a compound annual growth rate of 47%. And earlier this month, the company reported that its assets under management had grown 20% over the 12-month period to the end of September.

Looking at the investment case, I see considerable appeal in Impax. Profitability, as measured by operating margin and return on equity is high, while cash flow is healthy. The company also has a great dividend growth track record, having registered 10 consecutive dividend increases now.

Additionally, the valuation seems very reasonable – with analysts forecasting earnings per share of 12.8p for the year ending 30 September 2020, the forward price-to-earnings ratio is 20.2.

All things considered, I see Impax as a ‘buy’. I think the stock has the potential to keep smashing the FTSE 100 in the years ahead.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Edward Sheldon owns shares in Alpha FX and ASOS. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended Alpha FX. 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.

More on Investing Articles

Preparing a budget during a pandemic
Investing Articles

2 high-potential FTSE 250 stocks to buy and hold for 5 years!

The FTSE 250 is a good place to search for the next big British stocks. So, here are two companies…

Read more »

Black father holding daughter in a field of cows
Investing Articles

Could my Stocks and Shares ISA generate £30,000 a year?

Over 2m UK citizens make some use of a Stocks and Shares ISA every year. Our writer considers if it’s…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

4 dividend stocks that can help me fight inflation!

I'm looking at dividend stocks to help my portfolio grow and overcome the impact of high inflation. Here are the…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

2 bargain UK shares trading at less than book value

Book value is a great way to value a stock. These UK shares are trading at a price-to-book ratio of…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

A FTSE AIM stock I’d add to my Stocks & Shares ISA in July

Henry Adefope highlights a FTSE AIM stock he believes could generate significant upside for his portfolio if he buys this…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

I’m following Warren Buffett and buying cheap dividend shares to build my wealth

I think this cheap dividend stock exhibits similar qualities to the companies Warren Buffett has in his investment portfolio.

Read more »

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

2 cheap FTSE 100 shares I’m buying during the dip!

Andrew Woods explains that low P/E ratios and profitable businesses attract him to these two FTSE 100 shares.

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Down 45% in a year, is now the time to buy Scottish Mortgage shares?

Jon Smith explains why Scottish Mortgage shares appear to him to be good value given their post-pandemic fall.

Read more »