As the coronavirus lockdown continues, I think these small-cap stocks could be worth buying

Not every business will suffer from the lockdown. Paul Summers picks out three that should see demand for services and products increase.

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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.

As the UK enters its second week of lockdown, we’re all trying to occupy our time as best we can. For me, some of this has been spent looking for businesses that might see demand for their products or services increase during this tricky period.

Here are three minnows that jump out, warranting a closer look and perhaps a tentative first purchase. 

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Bloomsbury 

Books are likely to prove a very popular (and cheap) form of entertainment over the next few weeks. Despite UK shop closures, this could be good news for Harry Potter publisher Bloomsbury (LSE: BMY). I say ‘could’ because, right now, the company said it can’t really estimate the extent to which coronavirus has impacted trading.

Nevertheless, I’d be surprised if it failed to sell a decent amount of hardbacks, paperbacks, ebooks and audiobook downloads over the next few weeks/months.

In addition to the possibility of earnings remaining fairly stable, Bloomsbury’s prudent handling of its finances means it’s entered lockdown in a strong position. Net cash of £31m on the balance sheet is a nice buffer to have. 

Considering the shares are down roughly 25% from the highs achieved towards the beginning of 2020, now could prove to be a decent entry point. 

888

The decimation of the sporting calendar, including the postponement of Euro 2020 and the Olympics, is having a huge impact on gambling firms, such as William Hill and GVC. One stock that may turn out to be less affected than most is online gaming provider 888 Holdings (LSE: 888).

Last week, the company reported “increased customer activity” around its Casino and Poker products. It’s hoped this will make up for the impact on its Sports division (which made up 16% of revenue last year).

Obviously, no investment is risk-free. If sporting events are disrupted until September, the earnings hit could be in the “high single-digit millions of dollars,” according to the small-cap. So caution is still advised.

Despite this, 888 would be my clear preference in the gambling space. Its online-only business model means it can dodge the fixed costs associated with maintaining a physical estate. The company also reported having almost $100m in cash at the end of 2019. 

Boku

A final pick of small-cap firms likely to see a rise in demand is independent carrier commerce company Boku (LSE: BOKU). Put simply, Boku’s technology allows consumers to pay for things using their mobile phone number. Based on recent figures, this is proving increasingly popular.

Last year, the £200m-cap managed to grow revenue by 42% to just over $50m. It also announced its maiden post-tax profit ($400,000 compared to a loss of $4.3m in 2018).

This demand has only got stronger over the last month. It remarked on “significant increases in new users” of its platform. The focus was “particularly for streaming video services and gaming in those countries hardest hit by Covid-19.”

Unsurprisingly, this encouraging news has been reflected in the behaviour of Boku’s share price. It fell in tandem with everything else during March. But it’s now back to where it was at the start of the month.

Things are likely to stay volatile. But risk-tolerant investors may wish to consider taking a stake sooner rather than later.

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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.

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