Never mind the FTSE 100. These small-cap UK shares are on fire!

The UK’s top-tier index has had a good past 12 months. But our writer has found three UK shares from lower down the market spectrum that put this performance to shame.

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A lot has been made of the near-9% rise in the value of the FTSE 100 in the last year. However, this gain pales in comparison to the sort of return I could have earned if I’d had the foresight (or good fortune) to invest in certain small-cap UK shares.

Warpaint London

Specialist cosmetics supplier, Warpaint London (LSE: W7L) is one example. Its shares have been in glorious form — moving 130% higher in the last 12 months.

This move isn’t unwarranted. In April, the company reported a 40% jump in full-year sales to almost £90m in 2023. Pre-tax profit rocketed by 136% to just over £18m. The firm’s finances are also in fine fettle with no debt on the balance sheet.

Then again, I do need to remember that smaller company stocks tend to be volatile. As evidence of this, Warpaint shares roughly halved in price back in 2018. I fancy even the most risk-tolerant investor would have struggled to hold their nerve back then.

Another thing to be aware of is that this stock is no longer cheap. In fact, I’d need to stump up the equivalent of 24 times forecast FY24 earnings to get involved. That’s more than I’d like to pay.

For now, I’m keeping Warpaint on my watchlist in the hope that there’s some profit-taking around the corner.

Yu Group

Another small-cap stock that’s done the business for investors is Yu Group (LSE: YU). Shares in the independent gas and electricity supplier to the corporate sector have gained a stonking 170%.

Again, this can be justified. The company managed to grow its latest revenue by 65% to £460m. Pre-tax profit came in at £37.7m. That’s an increase of 580%!

Can this continue? There’s an argument for saying that many UK stocks are still undervalued relative to other markets (such as the US). A price-to-earnings (P/E) ratio of just 10 suggests Yu could be one of them.

More specifically, management estimates it still only has a 1.4% share of a “£50bn+ addressable business-to-business energy supply market“. With a forward order book of £826m, I reckon there could be further share price growth ahead.

But note that Yu has no control of energy prices. So, that’s a risk I’d need to bear in mind when cash becomes available to invest.

McBride

A final UK share that’s smashed the FTSE 100 is McBride (LSE: MCB). The manufacturer of cleaning products has delivered a staggering gain of over 330% thanks to ongoing, excellent sales momentum.

In its last update on 30 April management reflected that “strong operational performance” and “continued high demand levels” had led trading in March and April to be ahead of its own expectations. Full-year adjusted operating profit would now be roughly 10% ahead of analyst projections at the time of reporting.

Despite this, the shares still trade on forward P/E of just five! What gives?

Well, there are a few potential issues. First, the company has already highlighted that certain materials it uses are rising in price. Supply chain risks due to “geopolitical tensions” remain as well.

The biggest concern for me, however, is the massive debt pile (which is now far exceeds the company’s actual value).

I’d want to see this fall considerably before diving in.

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 recommended Warpaint London Plc. 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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