Since its IPO in 2014, Fever-Tree Drinks has rocketed from 165p to around 3000p. Identifying the right small-cap growth stock could be the thing that helps you retire early.
Team 17’s (LSE: TM17) business strategy extends far beyond simply designing and selling videogames. Since 1990, it has acted as an independent publishing label for gaming studios around the world, collaborating to aid with the development, marketing and sales of titles such as the famous Worms series and Genesis Alpha One.
Peaks & Troughs
Those who invested early since the IPO in May 2018 have been on a roller-coaster of peaks and troughs, but the market could finally be settling into a consistent upward trend. Financial results in March showed increased revenue from £29.6m in 2017 to £43.2m in 2018 – that’s a 46% lift! Earnings per share increased by 42%, demonstrating that earnings increases are being reflected in gains for investors. Since issuing the results, the stock has grown 14% from 232p to 265p. It’s quite possible that it is about to break out further, and now could be the perfect time to get on board…
Whilst the short term looks promising, investors could continue to be in for a bumpy ride. But the long-term outlook is promising as well. Gaming is a huge industry, and only looks to expand as new markets in emerging economies continue to develop. What’s more, Team 17’s focus on independent developers allows the more creative elements of the industry to establish great content at a fast pace and also entails a low-risk, high-yield approach to its releases. Rather than having to go all in on high-cost projects like companies such as Activision Blizzard do, Team 17’s strategy is to go for a wide range of small projects with high sales opportunities. Certainly, this is reflected in the revenue growth story so far.
Led by a Market Veteran
A further encouraging sign lies in the CEO: Deborah Bestwick, MBE. A leading figure in both the entrepreneurial and video gaming worlds, Bestwick has over 25 years’ experience in the industry, having won “Businesswoman of the Year” in 2016 from the Annual Women in Games conference. Still owning 22% of the company, Bestwick is a CEO with a formidable track record and skin in the game.
With a P/E ratio of 24.1, the stock might look on the expensive side, but on a PEG reading of 0.40, I believe the stock looks undervalued if the growth story plays out, and the latest set of results seem to suggest just that.
AIM stocks are high risk and volatile, but if you can stomach the high peaks and troughs that Team 17’s stock price could continue to experience, this could be a long-term investment to rival the returns of Fever-Tree Drinks.
The Alternative Investment Market (AIM) boasts the enviable record of being the most successful growth market in the world – so it makes sense to go digging for gold there, right? Well, plenty of companies have listed there and lost…
However, one strategy for capturing capital gains is to invest in expanding firms that have already proven their mettle with rising revenues, earnings and cash inflow – and we believe we’ve identified a small-cap winner with lots of ongoing growth potential in our recently refreshed report, “A Top Small-Cap Share From The Motley Fool”.
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David Maggs holds positions in Fevertree, Team17 and Activision. The Motley Fool UK does not own shares in any companies mentioned in this article. 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.