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Two small-cap growth stocks that could still make you a millionaire

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Finding shares which offer a mix of high earnings growth prospects and a low valuation could be somewhat challenging at the moment. Certainly, growth potential is high across a number of different sectors, but finding companies with low valuations is tough after a major Bull Run in recent years.

However, here are two smaller companies that could perform well in future and even help you to become a millionaire.

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Improving outlook

Reporting on Monday was business and company sales specialist K3 (LSE: K3C). It announced a trading update for the first six months of the year and it demonstrated a continued strong performance across all three of its divisions. It has seen a rise in revenue of around 34% compared to the same period of the previous year, while EBITDA (earnings before interest, tax, depreciation and amortisation) is 27% higher. Both sales and profit figures are within previous guidance.

Encouragingly, the company continues to gain recognition and improve market share across its three brands. It is also pursuing its stated strategy of increasing the average deal size across the company. And with a significant pipeline, it seems to be well-placed to perform well in future.

Looking ahead, K3 is expected to record a rise in earnings of 18% in the next financial year. Despite such a positive outlook, it trades on a price-to-earnings growth (PEG) ratio of just 0.7. This suggests that it offers good value for money even after its 27% share price rise over the last year. As such, it could be a stock that is worth buying, with its risk/reward ratio seemingly attractive for the long term.

Return to form

While many shares in the index are enjoying record levels of profitability, there are still a number of turnaround opportunities. For example, online advertising specialist RhythmOne (LSE: RTHM) has experienced three successive years of losses. This has caused investor sentiment in the company to deteriorate, with its stock price declining by 53% in the last year.

However, under its current management team the company appears to be making significant progress. In the current year it is due to report a return to profitability. It is expected to follow this up with a rise in earnings of 341% in the next financial year. Clearly, this is a hugely optimistic outlook for the business and there is a chance that forecasts may change between now and the end of the next financial year.

Investors, though, seem to have factored-in the uncertainty which may still face the company. RhythmOne has a price-to-earnings (P/E) ratio of just 5.7 and this suggests that there could be significant upside ahead. After a year in which the company’s stock price has performed poorly, there could be a clear catalyst to push its valuation higher. In an industry where rapid growth could be ahead, the company could enjoy high growth over the long run.

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Peter Stephens has no position in any company 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.

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