There is a body of research that shows that over the long term, small-cap stocks consistently outperform their large-cap brethren.
With this in mind, I screened the market for the top small-cap growth stocks. Here are just five of the screen’s results.
All companies have a market cap between £50m and £150m with a price to earnings growth ratio of less than one.
Character (LSE: CCT) is one of the UK’s leading toymakers and sales are booming.
The company manufactures branded children’s toys including the Peppa Pig, Scooby Doo, Doctor Who, Fireman Sam and Weebles brands.
And sales have really taken off over the past year. For the six months to 28 February 2015, Character reported record revenues and profits. Pre-tax profit jumped 178% year on year while revenue increased by a quarter.
Further growth is predicted for the rest of the year. City analysts believe that Character’s earnings per share are set to jump by 51% for full-year 2015. The company is currently trading at a forward P/E of 10 and a PEG ratio of 0.2.
Booming home sales
Inland Homes (LSE: INL) is a great small-cap play on the UK’s booming housing market. City analysts have pencilled in 70% earnings per share growth for Inland during 2015, suggesting that the company is trading at a forward P/E of 14.5. These figures indicate a PEG ratio of 0.2.
Analysts believe that Inland’s earnings will expand a further 18% during 2016, which means that the group is trading at a 2016 P/E of only 12.4. Inland currently yields 1.2%.
Slow and steady
Education support services company Tribal Group’s (LSE: TRB) growth isn’t anything to get excited about, but the group’s low valuation, combined with its stable earnings growth, earns it a place on this list.
Tribal’s earnings are set to expand 13% during 2015 and 10% during 2016. According to City figures, the company currently trades at a forward P/E of 11.4 and 2016 P/E of 10.4. This low valuation coupled with Tribal’s double-digit growth rate means that the group is trading at a PEG ratio of 0.9.
Tribal currently yields 1.4%.
Boring is good
Victoria (LSE: VCP) is an international carpet producer and distributor… hardly the most exciting business in the world.
Nevertheless, demand for carpets is taking off and Victoria’s earnings per share are set to jump by 36% this year. The company is currently trading at a relatively demanding forward P/E of 25.7, although when compared to Victoria’s projected earnings growth, this valuation isn’t overly concerning. Victoria currently trades at a PEG ratio of 0.7.
According to City figures, the company’s earnings are set to grow a further 41% during 2016. Victoria is trading at a 2016 P/E of 18.3.
Recovery in progress
The last company on my small-cap growth list is Volex (LSE: VLX). Volex has struggled to turn a profit during the past two years, as falling sales and a drastic restructuring program have taken their toll on results.
Nevertheless, according to the City’s figures, Volex is set to return to growth during 2016. Specifically, Volex’s earnings per share are set to rise 126% during 2016. This means that the company is trading at a 2016 P/E of 13 and PEG ratio of 0.1.
Earnings growth of 20% is expected during 2017 and Volex is trading at a 2017 P/E of 9.4.
Top growth pick
Our top analysts here at The Motley Fool have discovered a company that they believe could see its sales increase by 300% to 500% over the next few years. This is one of the most impressive growth stocks around.
However, few have realised its potential, and as a result, the company in question has been touted a one of the market's hidden gems.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.