I’m searching for the best small-cap shares to add to my investment portfolio. Here are three I think could enjoy excellent earnings growth over the next decade.
Begbies Traynor
Investing in UK-focused shares can be risky as economists tip prolonged weakness in the domestic economy. Yet Bebgies Traynor (LSE:BEG) is a stock that could thrive in this landscape.
You see, this company’s operations are about as counter-cyclical as it gets. Demand for its insolvency services is currently soaring as the number of firms experiencing financial distress unfortunately balloons. The AIM share recently announced that “we continue to take an encouraging level of new insolvency appointments across all market segments”.
This week, web-hosting business GoDaddy predicted that as many as 630,000 small and micro businesses could go bust this year. Companies of all sizes are struggling as consumers cut spending, and rising energy bills from April will heap extra pressure on British firms.
Naturally, trading activity at Begbies Traynor could fall as economic conditions improve. But I believe the firm’s aggressive expansion strategy should still deliver excellent long-term earnings growth. Just this month, it paid £400,000 to acquire chartered surveyors Mark Jenkinson & Son.
Frontier Developments
Games developer Frontier Developments (LSE:FDEV) has been having a tough time of late. Its share price slumped in January when it downgraded revenues and profits forecasts due to disappointing festive trading.
Weak sales remains an ongoing danger for the small-cap share too. Not only could turnover suffer as the cost-of-living crisis endures. Intense competition in the video games market is a threat that will never go away.
Frontier shares however, still appeal to me as a long-term investor. The video games market is already bigger than the movie and music industries combined and tipped for further stratospheric growth.
Frontier has shown it has what it takes to make a splash in the industry too. Popular titles include the Jurassic World, F1 Manager and Elite Dangerous, and the business is rapidly increasing its headcount to grow its games portfolio.
Vertu Motors
Demand for big-ticket goods often sinks when economic conditions worsen. So profits at car retailer Vertu Motors (LSE:VTU) are in danger of sustained weakness as the cost-of-living crisis endures.
Despite this, the business could be supported by a surge in demand for electric vehicles (EVs). The Society of Motor Manufacturers and Traders believes 500,000 of these vehicles will be sold in 2022. That’s up from the record 452,527 that hit the road last year.
Consumers are more likely to buy these new-age vehicles from showrooms as well. As a result, Vertu — which has almost 200 sales outlets across the country — is well positioned to win plenty of customers.
There are signs that the EV market is set for strong and sustained growth in the future. I’m expecting this small-cap share to make big profits in the process.
