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This stock turned £5,000 into £50,000 in four years. Is it too late to buy now?

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While small-cap companies can be more volatile than their larger peers, there’s no doubt that they can potentially make their shareholders a lot of money. Imagine making five or 10 times your money on a stock. It could literally be life-changing. With that in mind, here’s a look at an under-the-radar stock that has made bucket loads of cash for investors over the last four years.

Keywords Studios

After floating on the London Stock Exchange back in mid-2013 at a price of 123p, Keywords Studios (LSE: KWS) shares have enjoyed an exponential rise over the last four years, and now change hands just under the 1,300p mark. For investors who were on board from the IPO, a £5,000 investment would now be worth over £50,000.

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The £750m market cap company classifies itself as an “international technical service provider to the global video game industry.” The group works with some of the best known video game developers in the world, and helps to localise games such as Halo and Pro Evolution Soccer by translating the language and cultural references for international audiences.

With the help of a very aggressive acquisition strategy, the company has enjoyed prolific sales growth over the last five years, with the top line rising from €10.3m to €96.6m, a compound annual growth rate (CAGR) of an incredible 56%. Can this momentum continue?

Today’s half-year numbers certainly look quite strong. Revenue for the six-month period increased another 50% to €63.8m and adjusted earnings per share rose 55% to €0.132. Chief executive Andrew Day commented: “We have delivered another strong set of results for the first six months of the year as we continue to pursue our strategy of organic and acquisition-led growth as we build our global games services business.”

So is there still time to get on board or has the horse already bolted?

City analysts have pencilled in full-year earnings of €0.30, which at the current share price, equates to a forward P/E ratio of a high 48.6. While I don’t mind paying a premium valuation for a high-quality company, that valuation doesn’t leave much margin for error, in my view. Therefore, while Keywords Studios does look exciting, I’d be hesitant about jumping on board at the current valuation.

IMImobile

Trading at a less demanding valuation is cloud communications software and solutions provider IMImobile (LSE: IMO). The company helps its clients use mobile and digital technologies to communicate and engage with customers, and notable clients include Vodafone, O2 and Betfair.

I last covered IMImobile back in April, and at the time, the stock had just broken out into ‘blue-sky territory’ after clearing its previous high of 197p set in August last year. While the shares did temporarily rise higher, to almost 220p, they’ve since fallen back to the 185p mark.

At that price, the stock offers value in my opinion. With earnings of 11.6p expected for FY2018, the forward P/E ratio here is 15.9, which looks reasonable for a company that generated 15% organic revenue growth last year. With a market cap of just £113m, this is a small-cap growth stock I’ll be keeping a close eye on going forward.

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Keywords Studios. 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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