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2 small-cap stocks that could smash the FTSE 100 this year

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The FTSE 100 is currently trading at around the same level as at the start of the year. Meanwhile, fast-fashion retailer Quiz  (LSE: QUIZ) has gained 7.6%. And this is after a 4.2% dip today (as I’m writing), following the release of its maiden annual results as a listed company. At a share price of 170.5p, its market capitalisation is £212m.

The company, which was founded in 1993, was floated on AIM in July last year at 161p a share and I was impressed by its half-year results in November, rating the stock a ‘buy’. I maintain my stance on the back of today’s full-year numbers. I reckon this specialist in occasionwear and dressy casualwear has every prospect of continuing to outperform the FTSE 100.

A fast-growing business

Today’s results showed 30% year-on-year growth in group revenue to £116.4m. UK stores and concessions increased 12% to £64.4m, online rose a spectacular 158% to £30.6m and international sales grew 32% to £21.2m.

The omnichannel strategy is clearly working well and the company is investing for growth across its business. It currently operates 71 stores in the UK and the board believes that there’s potential for a further 40 to 50 stores in the medium-to-long term. International expansion represents a significant opportunity, with the company using multiple routes to international markets, including online, as well as standalone stores, concessions, and franchise and wholesale partners.

Attractive valuation

As the company is investing for growth, profit is not increasing as fast as revenue at this stage. It reported a 20% rise in underlying profit before tax to £9.8m and a 22% increase in underlying earnings per share (EPS) to 6.48p, a little ahead of City expectations of 6.3p. Net cash on the balance sheet at the year-end was £9.2m and the board declared a small maiden dividend of 0.8p.

Ahead of today’s results, analysts were forecasting EPS of 8.05p for the company’s financial year to March 2019. The valuation on this basis is attractive, in my view. The price-to-earnings (P/E) ratio is 21.2 and with EPS growth of 24.2%, the price-to-earnings growth (PEG) ratio is 0.88, which is on the good value side of the PEG fair value marker of one. A forecast dividend of 1.73p gives a prospective yield of just over 1%, as the board pursues a progressive dividend policy.

Good-value proposition

AIM-listed personal goods firm Swallowfield  (LSE: SWL) has been around since 1876. Its market capitalisation is £56m at a current share price of 325p. The shares have lagged the FTSE 100 so far this year, having declined 5.1%, but have more than tripled over the last three years. This has been due to new management in 2014 being successful in its aim of exceeding Swallowfield’s historical profit norms and shareholder returns.

The company formulates and manufactures products for many of the world’s leading personal care and beauty brands. It also has a growing owned-brands business, which represented 24% of last year’s group revenue of £74.3m.

For the current year ending 30 June, we’re looking at a forecast rise in revenue to £76.2m and a 33.3% increase in EPS to 23.6p. This gives a P/E of 13.8 and a PEG of 0.41. Add a forecast 6.15p dividend, giving a handy yield of 1.9%, and I see a good-value proposition here and rate the stock a ‘buy’.

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G A Chester 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.