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These small-cap stocks just keep growing. Time to buy?

With Brexit continuing to impact on how much people are willing to splash out on the high street, many retailers continue to feel the pain. One company that appears to be negotiating this uncertainty rather well, however, has been lifestyle brand Joules (LSE: JOUL)

Today’s pre-close trading update for the year to 26 May contained more good news for those already holding the casual-clothing-to-wellies-seller.

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At £218m, revenue was 17.2% higher than the previous year with the “strong momentum” seen in the first six months of the financial year and over Christmas continuing into the second half  — something the small-cap partly attributed to overseas growth.

Reassuringly, the 30 year-old company’s online operations “performed particularly well,” so much so that they now contribute 50% of the £159.1m revenue from retail. 

Wholesale revenues were 2.9% higher with strong growth reported in the US and Germany. In fact, approximately half of sales in this part of the business now come from overseas.

All this (and combined with cost savings) has led management to predict that underlying pre-tax profit will be “at the top end of the range” of analyst forecasts. So, somewhere near £15.3m. 

Stock in Joules was trading at 19 times earnings before markets opened. That’s clearly not as cheap as retail peers such as Next which also boasts a better yield (2.9% vs Joules’s 1%). 

Nevertheless, Joules does have qualities that investors tend to be willing to pay out for such as high returns on capital and plenty of cash on the balance sheet.

The potential for more growth overseas also goes some way to justifying the valuation, at least in my view. At this point in time, the company’s international business contributes ‘just’ 16% of total revenue — a proportion that I think will only increase over time, so long as management remain disciplined in their approach.  

Joules continues to look like a great business. Since I’ve already got a small holding in another clothing retailer, however, I’m prepared to sit on the sidelines for now. Should a general market wobble come along, I could be sorely tempted. 

Growth and income

Another small-cap impressing the market today was freight manager Xpediator (LSE: XPD).  According to the market minnow, demand for its services “remains strong.” In addition to trading in line with market expectations, it commented on seeing a lot of “bolt-on opportunities” which could generate value for the company, if acquired.

Aside from this, a number of management changes were announced, including the promotion of CFO Stuart Howard to CEO from September. Stephen Blyth — Xpediator’s current CEO — will move to the position of executive chairman and focus on developing the company’s strategy and merger and acquisition opportunities. My only slight concern here is that Howard will combine his CFO and CEO roles if a replacement for the former isn’t found in time.  

Right now, you can pick up Xpediator’s stock for just 9 times earnings. For a company that’s tripled in size in just two years and shows no signs of slowing down, that looks good value to me. Its asset-light business strategy (it doesn’t own a fleet of trucks and therefore has low overheads) also appeals, as does the secure-looking 4% dividend yield.

Still relatively unknown among retail investors, I continue to think that Xpediator could be worth buying as part of a diversified portfolio.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Joules Group. 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.