Forget the FTSE 100. This UK small-cap share is up 400% since markets crashed!

The FTSE 100 (INDEXFTSE: UKX) is up 12% since the beginning of the month, but owners of this small-cap share have more to sing about.

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It may be down today, but the FTSE 100 index has been in stellar form recently. Since the beginning of November, the top tier has climbed 12% in value, thanks to news on promising coronavirus vaccines. It hasn’t been this high since June.

Even so, this return is nothing compared to what investors could have made through careful stock-picking. Unsurprisingly, some of the biggest winners since March’s market crash have been in the small-cap arena.

Today, I’m looking at a personal favourite — online musical instrument seller Gear4music (LSE: G4M). Shares in the business are up a stunning 400% in the last eight months. Based on today’s set of interim results, it’s not hard to see why. 

Lockdown beneficiary

At £70.2m, revenue was 42% higher over the six months to the end of September than that achieved over the same period in 2019. Gross profit also soared — by 61% — to £20.1m. 

This isn’t exactly a surprise. When lockdowns were enforced in March, many of us were forced to entertain ourselves in the comfort of our own homes — a perfect scenario for companies selling products such as video games, books and, yes, musical instruments. As a consequence, Gear4music had 403,000 new customers making purchases over the six months — a 52% improvement on the previous year. 

All told, a record net profit of £4.9m for the period was reported. This compares favourably to the £0.1m loss over the same period in 2019. 

But will this form continue?

Will these impressive gains be maintained? I think so. In fact, I remain bullish on Gear4music from both a near-term and long-term perspective.

While one would suppose that many budding musicians will already have most of what they need during the second UK lockdown, news that trading in November “continues to be very strong” would suggest otherwise.

Of course, it could be that people are simply cautious on lockdown restrictions actually being lifted and are getting their Christmas shopping done online instead. Regardless, those already owning the shares will likely be encouraged by news that results for the full year are now predicted to be ahead of market expectations, which were only recently upgraded. Not many FTSE 100 constituents are saying this right now!

On a longer time horizon, the signs look equally positive. As CEO Andrew Wass commented today, more people now “appreciate the benefits that playing and creating music can bring.” Moreover, the fact that mastery of an instrument takes a long time could play into the company’s hands.

The ongoing growth in online shopping should also be good news, albeit at the expense of independent retailers on the high street. I suspect many of the latter will become casualties of 2020 and shut up shop for good.

With European hubs and distribution networks already up and running, negotiating Brexit shouldn’t be an issue either.

FTSE 100 beater

There’s certainly nothing wrong with owning a FTSE 100 tracker or exchange-traded fund. This is particularly the case for those who have little interest in the stock market. Over the long term, anyone adopting this strategy should do well so long as they reinvest the dividends they receive.

But I remain a huge advocate of buying shares in promising small-cap UK companies that can grow revenue and profits far quicker than your typical FTSE 100 giant.

For me, Gear4music continues to hit all the right notes. 

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.

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