There are many strategies that have been proven to ‘work’ when it comes to investing: buying into momentum, reinvesting dividends, nabbing quality stocks at reasonable prices.
If you’re intent on achieving financial independence earlier than most, however, you may wish to focus on promising small-caps instead. It is, after all, easier for these firms to rapidly grow revenue and profits than it would be for your typical FTSE 100 juggernaut. Today, I’m looking at two market minnows doing just that.
“Another strong year”
D4t4 Solutions (LSE: D4T4) focuses on helping businesses collect, manage and analyse their data. It’s been around for 34 years now, albeit under the name of IS Solutions before rebranding in 2016.
Hailing “another strong year of profitable growth,” the company today posted a near-37% rise in total revenue (to £25.2m) for the year to the end of March. It reported “notable sales success” in both the US and Europe, including winning its largest contract to date for its Celebrus software in the latter. At £6.34m, pre-tax profit was near double that achieved in the previous financial year.
Unsurprisingly, D4t4’s finances continue to strengthen with £11m in net cash at the end of March — a rise of 185% in just one year. Although unlikely to be a priority for holders, the 20% rise in the dividend to 3p underlines just how confident the company is on future trading.
According to CEO Peter Kear, D4t4 “enters the new financial year in robust shape after closing a number of significant contracts in the second half of the year benefitting 2018-19 and subsequent years.”
Shares were trading on almost 19 times earnings before the market opened, and are now up around 4%. While some profit taking wouldn’t be a surprise, I can see this business getting a lot more attention from investors going forward.
In a sweet spot
Another small-cap company growing at a fair clip is AIM-listed Cake Box (LSE: CBOX). Yesterday’s full-year results from the franchise cake manufacturer and retailer appear to have gone down well with those already invested.
The £67m-cap recorded a 33% rise in revenue to £16.9m in its first year as a listed business. After taking into account the costs of its IPO, adjusted pre-tax profit came in at £4m — a 19% rise.
Cake Box’s estate is also growing. Over the 12 months, it added 27 new franchise stores, giving a total of 113 now in operation. Like-for-like store sales grew 6.5%, while online sales rocketed 58% to £4.4m.
Like D4t4, Cake Box has plenty of cash on its balance sheet (£3.1m). A 50% hike to the final dividend resulted in a total payout for the year of 3.6p, giving a trailing yield of 2.1% at today’s share price.
Like D4t4, the company was also upbeat on its outlook, highlighting how it plans to open two stores a month as part of a growth strategy that has also included the purchase of two new production and distribution centres. According to CEO Sukh Chamdal, “there is still significant scope for expansion” into other regions.
While it’s understandable if some investors are wary following the collapse of Patisserie Valerie, Cake Box looks an interesting proposition. Trading on a little less than 17 times forecast earnings, it’s earned a place on my watchlist.
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Paul Summers 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.