The last few years have been very good to shareholders of carpet manufacturer Victoria (LSE: VCP). The acquisition-hungry firm has become one of the largest players in the UK market by buying up small competitors, improving their margins, increasing cross-selling and then re-investing the proceeds back into further purchases.
And even though the company’s stock has risen more than 75% over the past year, I think more astounding growth could be on the way as the group sets its sights on the massive European market. Its latest two acquisitions there total €274.1m and not only broaden the group’s exposure to new regions, but also marked its first foray into ceramic flooring, a huge market in its own right.
Even before these two high-margin acquisitions, revenue has been growing quickly with sales up a whopping 24% year-on-year in the half year to September. Much of this growth came from acquisitions but I estimate organic growth of around 4% was recorded in the period, which is very, very good.
With growth accelerating and a stellar history of consistently improving margins and cash flow across the business, I think Victoria is setting itself up for another great year.
You’ve got mail
Also on my list is digital marketing software provider dotDigital (LSE: DOTD). The company’s share price has leapt by 50% in the past year as its dotmailer e-mail and multi-channel marketing tool has caught on with clients looking for effective, easy-to-use automated methods to stay in contact with prospective and current customers.
With a highly effective, but low-cost, core product, dotDigital has had few problems finding clients ranging from small businesses to FTSE 350 firms. In the half year to December, revenue was up 25% to £18.8m due to a small bolt-on acquisition and impressive organic expansion of 17%.
And unlike many small firms that are growing rapidly but lose loads of money, dotDigital is profitable and has a large cash position. This is in large part due to the fact that over 80% of its revenue is highly profitable recurring sales from existing clients. In 2017 this led to EBITDA margins hitting 31.5% and net cash rising to £20.4m, although a recent £11m acquisition will dent this figure.
With a great product in a fast growing market, cash on hand and proven profitability, I think dotDigital is attractively priced even at 30 times full year 2018 earnings.
To infinity and beyond
A more out-of-this world option I’ve got my eye on is Gooch & Housego (LSE: GHH), which is an expert in designing high-quality optical components for end markets ranging from space agencies to health imaging and a wide variety of industrial applications.
In the year to September the group’s revenue jumped 18.7% on a constant currency basis to £112m due to organic growth and a small acquisition. This growth was driven by particularly strong demand and management is investing heavily in both R&D and acquisitions to support what are expected to be years of strong growth.
And in the meantime the business is still strongly profitable with adjusted pre-tax profits hitting £16.1m last year and its net cash position rising to £14.9m at year-end. While Gooch & Hosuego isn’t cheap at 26 times forward earnings, the group’s strong competitive position and high growth prospects make it very attractive to me.
But you don’t have to stomach high valuations to gain exposure to fast-growing businesses, which is shown by the Motley Fool’s Top Small Cap that trades at just seven times earnings but has still grown earnings by double-digits four years in a row.
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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has recommended dotDigital Group and Gooch & Housego. 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.