Buying shares in companies that have delivered exceptionally high share price returns can be a risky business. After all, their share prices are unlikely to offer the same value for money as they once did. Furthermore, the stock market may have fully factored-in their growth potential which may result in a narrow margin of safety.
However, this view may not hold true in all circumstances. In some cases there may be further growth to come. Having risen 1,476% in the last five years, is this small-cap stock worth buying right now?
Reporting on Friday was Bluejay Mining (LSE: JAY). The company is focused on advancing the Dundas Ilmenite Project in Greenland into production in 2018. It released news of the commencement of a feasibility study, with a number of advisers appointed in order for it to be completed. The final feasibility report is expected for completion during the first quarter of 2018, and it will form the final part of the exploitation licence application that is expected to be approved in the first half of next year.
Bluejay Mining has risen significantly in the last five years. Investor sentiment is increasingly positive regarding the company’s outlook. If its progress continues and it is able to start production over the medium term then further share price gains could be on the cards.
Clearly, the company remains a relatively high-risk opportunity. While its strategy and project potential appear to be sound, it is a small stock which could be highly volatile and could be the subject of profit taking should its outlook deteriorate. However, for less risk-averse investors who are seeking a small mining company with high growth potential, it could be worth a closer look.
High growth potential
Offering significant investment potential right now is gold and silver miner Hochschild (LSE: HOC). The company’s share price has disappointed in the last three months, with it falling 10%. However, it has high earnings growth potential which could catalyse investor sentiment.
For example, the company is expected to post a rise in its bottom line of 81% in the next financial year. This puts it on a price-to-earnings growth (PEG) ratio of just 0.2, which suggests that it could be worth considerably more than its current valuation. Furthermore, there is the prospect for an upgrade to its guidance since the price of gold could move higher. With uncertainty surrounding North Korea set to continue, and inflation likely to rise if US spending increases, demand for gold could increase over the medium term.
Hochschild could also become a more in-demand income stock. It currently yields just 1.3%, but with dividends due to be covered over three times by profit next year the level of shareholder payouts could increase rapidly. Therefore, with some defensive characteristics as well as high growth potential at a low price, the risk/reward outlook for the company remains favourable.
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Peter Stephens has no position in any of the 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.