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These 2 small-caps could make you rich

Shares in software & services provider Sopheon (LSE: SPE) have surged in value over the past 24 months. Since the beginning of August 2017, the stock has added 232%, outperforming the FTSE 100 by 222%.

But can this small-cap continue to beat the market? Today I’m going to try to answer this question.

Growth revival

Looking at the company’s historical numbers, it is immediately clear why shares in Sopheon have done so well over the past two years. 

The group didn’t break even until 2015. Another healthy year of growth in 2016, convinced the market Sopheon’s profitability was sustainable. Since then, the firm has gone from strength to strength.

Today, the group has reported that pre-tax profit hit $2.9m in the six months to the end of June, up 62% year-on-year. Revenue for the period increased by around 27% to $15.9m.

Unfortunately, sales and marketing expenses also jumped, rising 17% to $4.1m. Although, it is unsurprising that costs have grown as the business has expanded.

For the full-year, Sopheon is now expecting revenue of $27.2m, down slightly from the $28.5m reported for 2017, but significantly above the $23.5m guidance given at the time of the company’s annual general meeting in June.

If this momentum continues, I reckon the company could end up beating its own forecasts. Indeed, the firm notes in its half-year report that performance was better than expected as “both the market, and our reputation and position, continue to advance.” Put another way, it looks as if Sopheon is benefitting from a snowball effect. 

Management is so confident of the outlook for the business, earlier in the year the firm declared its first ever dividend of 2.5p per share.

Sopheon is making all the right noises, and I believe the company’s growth is only just getting started. With this being the case, I’m not put off by the stock’s forward P/E of 23.7. With $15.5m of net cash on the balance sheet as well, this business seems to have less risk than many of its fast-growing tech peers.

Complex business

With a market cap of around £100m, Sopheon might be too small for some investors. If you’re looking for a bigger tech play, Microgen (LSE: MCGN) is one of my favourite picks in the space.

It offers a highly technical and specialist service to customers in the financial services sector. It provides software to help fund managers administer assets under management, among other things.

As the volume of regulation the financial services sector has to deal with has increased, demand for Microgen’s products has jumped. Net profit has doubled over the past five years. Analysts are expecting a slight decline in EPS this year, but growth is expected to return in 2019. The figures indicate that the stock is trading at a 2019 P/E of around 21, which I reckon is a fair price for this business.

In fact, you could argue the company deserves a higher multiple because it’s clients are unlikely to switch products regularly due to the complexity of changing over an entire computer system and the possibility of customer data loss. As Microgen continues to grow, the shares could head much higher in the years ahead.

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Rupert Hargreaves owns no share 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.