Staying invested in equities over many years can help to secure a comfortable retirement. However, if you’re wanting to put your feet up earlier than most, you’re probably going to need to take on more risk. One way of doing this is by looking further down the market spectrum for companies that offer the possibility of sizeable capital gains. Here are two market minnows that might tick this box.
For reasons other than just its memorable ticker, Focusrite (LSE: TUNE) has been a striking a chord with more and more investors over the last few months. Since this time last year, the share price of the global music and audio products provider has almost doubled. While not in quite the same ballpark as gains achieved by musical instrument seller Gear4music (+445%), that’s still a superb return.
A quick revision of the company’s interim results — released at the start of May — underlines just why Focusrite is proving so popular.
In the six months to the end of February, group revenue climbed almost 24% to £32m. The 25% sales growth experienced in the US market was particularly impressive.
Profits before tax rocketed by just over 89% to £4.6m with basic earnings per share up to 7.3p — a rise of 82.5%. Focusrite ended the period with net cash of £9.4m — well over double the amount it had at the start of March 2016.
On an operational level, the company reported launching six new products over the half-year period and excellent demand for its Scarlett USB audio interface range. There were also strategic wins in the broadcast business-to-business market for Focusrite’s RedNet suite of solutions.
At 21 times earnings, the stock isn’t cheap. With excellent returns on capital, an ambitious new CEO in the form of Tim Carroll and a market leading position however, it might just be a price worth paying.
Strong revenue growth
Another small-cap that looks set to keep rewarding investors is mobile advertising technology company Taptica International (LSE: TAP). If the name doesn’t ring a bell, you’re probably more familiar with some of the companies it works with, such as Facebook, Disney and Amazon.
Like Focusrite, shares in Taptica have delivered an impressive return over the last year, rising a barnstorming 250%. For justification of this, just take a look at some of the full-year numbers released in March.
Over 2016, revenue at the £170m cap jumped 66% to just under $125m with 86% of this coming from mobile business. Gross profit more than doubled to $46m with gross margin hitting 36.5%.
While the US market continues to be the company’s biggest, Taptica is expanding its footprint through the opening of new offices in Seoul and London and partnerships in countries such as Japan. Looking forward, management appears confident that existing clients will continue to grow their advertising spend, thus leading to “strong year-on-year revenue growth in the year ahead”.
You might think that the shares would be trading on a lofty valuation but that’s simply not the case. Right now, you can grab the stock for just 11 times 2017 earnings. That seems alarmingly cheap for a company with a history of high returns on capital and a £21.5m net cash position.
Expect a trading update from cash-generative Taptica very soon. More good news and the shares should continue to soar.
If Focusrite and Taptica have whetted your appetite for small-cap opportunities, you'll definitely want to read the latest report from Mark Rogers, Head of UK Investment at the Motley Fool.
Mark's tracked down an off-the-radar company whose shares still trade on a compelling valuation.
His report is available completely FREE of charge and without obligation. Just click here and it's yours.
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.