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This small-cap growth stock’s been flying in 2019 and I think there’s more to come

Shares in small-cap science instrument designer and manufacturer Judges Scientific (LSE: JDG) were registering great gains in early trading this morning as the company revealed a very encouraging set of half-year results. 

Revenues rose 9% to a record £40.2m in the first half of 2019 with adjusted pre-tax profit jumping 27% to £8.4m. Judges’ net cash pile also continues to grow, hitting £7.2m by the end of June compared to £700,000 at the end of 2018.

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The firm had £20.8m in cash at the end of interim period — £5.1m more than at the end of December. And while the market minnow is unlikely to currently attract yield-hungry investors, the fact the interim dividend was hiked by no less than 25% today is indicative of just how confident management is in its future

Indeed, buoyed by recent business and a decent order book (despite what chairman Alex Hambro described as a “subdued second quarter“), management now predicts adjusted pre-tax profits and earnings per share for the full year will be ahead of previous analyst expectations of £15m and 188.4p, respectively.  

Having already climbed 42% in value so far in 2019, Judges’ shares are clearly not the bargain they once were. On 18 times forecast earnings before today’s upgrade, I still think they warrant attention once traders have realised some profit, especially as returns on capital and free cash flow are also going in the right direction. 

Revenue up, share price down

Also revealing interim numbers this morning was gaming services provider Keywords Studios (LSE: KWS) — a company that was propelled to mid-cap status when its share price multi-bagged between 2016 and 2018.

Here, revenue jumped a little under 40% to €153.2m, thanks to an increase in demand across all of the company’s service lines (and a rise in the number of clients buying 3 or more of said services).

Adjusted pre-tax profit climbed 14.3% to €18.4m, although gross margin fell slightly to 36.1% (from 37.4%) as a result of investment in its recruitment, training and facilities around the world. The latter is expected to bounce back in the second half as the company is able to grow capacity and offer new services.

Like Judges Scientific, Keywords also hiked its interim payout by double digits to 0.58p per share. Don’t get excited though – the 1.7p per share analysts expect for the full-year gives a yield of just 0.12%.

There’s been no let-up in the Dublin-based firm’s growth-by-acquisition strategy either, with four businesses purchased over the first half, and another (Berlin-headquartered TV Synchron) announced today. With net debt standing at just €9m, this spending spree is unlikely to end soon.

According to Keywords, trading in H2 so far has been encouraging with the board now predicting “strong organic revenue growth,” albeit a little slower than in H1, as some game developers wait for new games consoles due for release next year. That said, CEO Andrew Day said revenue would still be “at the upper end of current market expectations.”

Unfortunately, it would seem this wasn’t enough reassurance for some, with shares down almost 10% — further proof of just how unforgiving investors can be if companies on already punchy valuations in hot sectors do anything less than outperform (Keywords was trading on a forecast 29 times earnings).

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Paul Summers has no position in any of the stocks mentioned. The Motley Fool UK has recommended Judges Scientific and Keywords Studios. 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.