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2 small-cap stocks I’d buy before it’s too late

So long as expectations remain realistic, buying shares in companies with growing popularity among investors can be a profitable strategy. Here are two market minnows currently exhibiting positive momentum, and whose results are expected next month.

Raising its profile

If you’d you been brave (or fortunate) enough to buy a slice of luxury interior furnishing firm, Walker Greenbank (LSE: WGB) immediately following last year’s shock EU referendum result, you would have enjoyed a very healthy 36% capital return so far. I think there could be more to come. 

In its last trading update (for the year ended 31 January), the AIM-listed, Uxbridge-based company stated that results for the year were now expected to be in line with management expectations. These numbers will also include a contribution from industry peer Clarke and Clarke — acquired by the company back in October — and insurance payouts relating to the flooding of the Greenbank’s fabric printing business (Standfast & Barracks) in December 2015. 

Despite the problems connected with the floods, group sales for the year are still expected to be higher at £92.4m compared to £87.8m in the previous year — a positive sign, particularly in light of Brexit and the undeniably cyclical nature of Greenbank’s earnings.

Last Tuesday, the £151m market cap company revealed that retailer John Lewis had launched two pop-up shops showcasing its products in the latter’s flagship store on Oxford Street. With each featuring wallpaper and textile collections from Greenbank’s brands (Scion, Harlequin, and Morris & Co) along with a diverse range of licensed products including bedding, towelling and tableware, this can only help to raise the company’s profile.

Based on predicted growth of 19% for the next financial year, Greenbank’s shares currently change hands for a not-unreasonable 15 times forecast earnings. While a forecast yield of just 1.8% is hardly enticing, it should be pointed out that the company is rapidly and consistently hiking its bi-annual payouts. Boasting a net cash position and decent returns on capital, I think there are worse options out there. 

Full year results are due on 26th April.

Dynamic performance

Another small cap that may warrant further research before next month is testing systems provider AB Dynamics (LSE: ABDP). Serving the global automotive industry, shares in the £117m company have soared by 50% since this time last year. Based on this week’s trading update, I think they have even further to go before half year results are announced on April 25th.

On Wednesday, AB predicted that revenues and operating profits for the six months to the end of February would be ahead of the same period last year and in line with management expectations. Demand for the small cap’s track testing products appears to be growing and a robust order book running into the next financial year is certainly encouraging. A new HQ — intended to help reorganise production and support further growth — will be ready by the end of the summer. 

Recent performance aside, it’s also worth pointing out that AB Dynamics’s balance sheet boasts a net cash position. Factor in a history of generating high returns on capital and a price-to-earnings growth (PEG) ratio of below one and the high valuation attached to the company’s shares  (25 times 2017 earnings) loses some of its sting. Considering that net profits in 2018 are expected to be over double those achieved in 2015, I’d be surprised if AB’s shares deviated from their upward trajectory.

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Paul Summers has no position in any 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.