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Forget SXX! All I want for Christmas is this small-cap stock and it’s top of my list!

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I’d forget all about trying to get rich by betting on cash-strapped and desperate Sirius Minerals.

One way of keeping out of a lot of trouble on the stock market is to completely avoid highly speculative and profitless companies that are peddling an enticing story. Sadly, Sirius Minerals fits the criteria of one to avoid, to my mind. Indeed, in many cases, the experiences of its shareholders have not been pleasant, so far.

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Fast growth in earnings

However, I’m enthusiastic about a little-known stock with decent-looking prospects. Business recovery and property services consultancy Begbies Traynor (LSE: BEG) released a decent set of numbers in its half-year report today and the outlook for the underlying business is positive.

In the six-month trading period to 31 October, revenue increased by almost 21% compared to the equivalent period the year before, the operating margin improved from 12.6% to 13.2%, and adjusted earnings per share shot up by nearly 24%. The directors put their own positive stamp on proceedings by slapping 12.5% on the interim dividend — nice!

I reckon, the fact that a firm with a market capitalisation of only around £112m has a dividend in the first place is a good sign, and it’s even more positive when the directors increase it by a meaningful amount. Such a move speaks volumes about current trading and the outlook.

Revenue increased 10% in the period because of organic growth, which demonstrates a healthy uptake for the firm’s services. The company has been investing in new fee-earning staff for both the Business Recovery and Financial Advisory division and the Property Advisory and Transactional Services division.

The rest of the overall increase in revenue arose because of acquisition activity, and there were three in the period. Funding arrived for the purchases with the completion of a £7.8m placing in July.

Favourable market conditions

Looking ahead, executive chairman Ric Traynor said in the report that “favourable” conditions in the UK insolvency market and the increased scale of the firm’s activities means the company is “well placed” to grow revenue and profits in the years ahead. City analysts expect earnings to grow by a mid-teen percentage in the trading year to April 2021. Meanwhile, the recent acquisitions look set to boost earnings in the current trading year and in the years ahead.

With the share price close to 88p, the forward-looking earnings multiple for the trading year to April 2021 is around 13 and the anticipated dividend yield is 3.4%. If recent levels of growth can continue, I don’t reckon the valuation looks too stretched.

As well as being in a market with an apparent tailwind, the firm has shifted into a groove of increasing its dividend by robust single-digit percentages, and I’m likely to justify picking up a few shares on the strength of that.

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Kevin Godbold has no position in any 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.

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