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Two hot growth stocks to watch closely in 2018

Today I’m looking at two exciting small-caps that have significant long-term potential. Are these stocks on your watchlist?

Gresham Technologies

£136m market cap Gresham Technologies (LSE: GHT) is a software and services company that specialises in providing real-time transaction control and enterprise data integrity solutions to financial services institutions. Its key product Clareti has been designed to assist companies with internal risk management, data governance and regulatory compliance.

Gresham released full-year results for 2017 this morning and the numbers look pretty good. For the year ended 31 December, group revenues increased 26% to £21.7m, easily beating consensus estimates, with revenues from Clareti surging 48% to £11.1m. Adjusted EBITDA rose 34%, while adjusted earnings per share climbed 38% to 6.5p. The company had a cash balance of £8.5m at year-end, up from £7.2m last year.

Management stated that it was confident about the group’s prospects, with CEO Ian Manocha commenting: “With Clareti sales now generating more than half of all Group sales and with the Group now generating surplus cash for the first time in many years, we are confident our strategy is on track and certain about our ability to deliver sustainable long-term profitable growth for our shareholders.”

One thing that stands out to me about today’s results is that the firm has initiated a progressive dividend policy. A final dividend of 0.5p per share was proposed. To my mind, this is a signal of confidence from management and suggests that the outlook for the firm is positive.

Given today’s strong numbers and the dividend initiation, I believe the story here looks exciting. It seems the market agrees with my stance, with the shares up 3% today. This is a stock to watch closely in 2018 and beyond.

Clipper Logistics

Another small-cap worth keeping a close eye on in 2018 is Clipper Logistics (LSE: CLG). Back in late December, I listed CLG as a ‘blockbuster growth stock’ to watch in 2018. However, so far the stock has not lived up to the hype. After an initial run higher in early January to 485p, the shares have fallen by nearly 20%. Yet that has not put me off the growth story.

Clipper provides bespoke logistical services to clients such as John Lewis, New Look and Asda. As such, the company should benefit as the popularity of online shopping increases and consumers become increasingly more impatient. Revenue and profits have grown significantly in recent years, and City analysts expect the growth to continue in the near term. For the year ended 30 April, Clipper’s top line is expected to grow 18%, while net profit is anticipated to climb 20%.

The recent share price decline has lowered Clipper’s forward P/E ratio to 25.6, a valuation which I think is reasonable. A prospective dividend yield of around 2.2% is also on offer. Like Gresham Technologies, this is a stock to watch closely in 2018.

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Edward Sheldon owns shares in Clipper Logistics. 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.