Some small-cap growth stocks have had a particularly good year, especially those meeting consumer needs and focusing on biotech. Two UK shares that have piqued my interest are Cake Box Holdings (LSE:CBOX) and Genus (LSE:GNS).
Cakes solve many problems
Cake Box Holdings is a small-cap growth stock that’s had an outstanding 2020 despite the pandemic headwinds. The Cake Box share price has risen 21% year-to-date.
The company is Vegetarian Society Approved and free from eggs. They offer a gluten-free range of teatime cakes and have all cake ingredients listed on the company website. It’s a popular business that’s really taken off. While cakes are readily available in supermarkets and bakeries across the UK, people love a treat and Cake Box makes catering to special diets simple. Vegetarianism is on the rise and I think its vegetarian and eggless appeal will help keep it relevant.
It’s staying power will largely depend on its range of products and customer service. So far, so good, as it appears to be keeping customers happy with 30% revenue growth year-on-year for the 20-week period to September 30. However, it did lose out on six weeks of sales during lockdown.
Boundless growth for this small-cap stock
Nevertheless, Cake Box wasn’t deterred by the lockdown. The company paid back furlough money it received and paid shareholders a special dividend to replace the previously cancelled one. It’s been recruiting, and management is confident it can weather any storm.
Listed on the FTSE AIM All-Share index, Cake Box is following a similar model to Domino’s Pizza. But unlike Domino’s, Cake Box still has vast room for growth. Illustrating this point, it added six new franchise stores to its group of holdings during the six months to 30 September, plus another five since then. It now has 144 stores, mainly throughout England, with one in Scotland. It’s also been using Uber Eats, Just Eat, and Deliveroo to help boost online sales.
The £84m company’s price-to-earnings ratio (P/E) is 26 and earnings per share are 7.8p. Its forward dividend yield is approximately 2.8%, based on an annual payment of 5.9p per share. I like the look of this company, but the high P/E is off-putting.
A biotech growth stock shaking up agriculture
Genus is another small-cap growth stock, and it’s a biotech company dealing in livestock. The animal genetics specialists carries out gene editing to create genetically elite breeding animals and embryos. It sells these internationally to pork, beef, and milk producers, competing with national and regional farmer-owned cooperatives. The point of this is to improve the efficiency and sustainability of meat and milk production and reduce the spread of disease.
Genus has a £2.7bn market cap. Its P/E is 66 and earnings per share are 62p. The company doesn’t yet offer a dividend. I think the Pfizer/BioNTech coronavirus vaccine approval will speed up acceptance of other gene editing processes, paving the way for progress in this area. This bodes well for Genus in the future.
The Genus share price is up nearly 28% year-to-date and its high P/E reflects this. Yet, I do think this company may well continue to thrive in 2021, as China is recovering well and demand for Genus’ offerings is accelerating.
All-in-all, I think both Genus and Cake Box are small-cap growth stocks that will continue to thrive in 2021. I’d consider buying on a dip.
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Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended Domino's Pizza, Just Eat Takeaway.com N.V., and Uber Technologies. 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.