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These small-cap stocks are rising: would I buy now?

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Exciting things can happen at the smaller end of the stock market, which is why I keep some of my portfolio invested in small-cap stocks. Although these smaller companies can carry extra risks, they can also grow much faster than larger firms.

Both of the companies I’ve looked at today have delivered share price returns of at least 70% over the last year. Should I jump on board and buy these fast-growing stocks, or is it too late?

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Solid foundations

The share price of groundworks contractor Keller Group (LSE: KLR) is up by 10%, as I write. Keller went through a difficult patch in 2018. This small-cap stock is a former FTSE 250 name, but a difficult period in 2018 set the business back.

The good news is that Keller has been recovering steadily since, despite the impact of the pandemic. Pre-tax profit rose by 24% in 2020 and the company has just said 2021 profits are expected to be “materially ahead” of previous expectations.

I should point out that Keller isn’t just any old construction company. It’s a “geotechnical solutions specialist”. Past projects have included building the foundations for stadiums, container ports and oil refineries. Keller has also been responsible for underpinning central London property where new tunnels and sewers are being built.

The company’s financial situation looks quite healthy to me, and Keller has maintained or increased its dividend every year since 1994.

However, there are a couple of risks that make me cautious about investing in construction. First, this is a cyclical sector — we do see boom and bust cycles. Second, the kind of projects Keller works on are large but have quite low profit margins. One troublesome project can have a big impact on annual profits.

Despite these risks, I’ve always been impressed by Keller. I think the group’s specialist focus on infrastructure means demand is likely to stay strong over the next few years.

With that in mind, I think the shares look reasonably priced, with a price/earnings ratio of 12 and a 4% dividend yield. This is a stock I’d consider buying.

This small-cap stock has doubled in a year

My second pick is £100m property firm Belvoir (LSE: BLV). This group manages franchised estate agency chains including Belvoir and Northwood, and also has a mortgage business. In total, Belvoir has 439 offices across the UK. These manage over 70,000 rental properties and handled more than 8,000 home sales last year.

The latest update from Belvoir suggests that the housing market remains pretty strong. Revenue rose by 41% during the first half of 2021 and the company expects to report a strong result for the full year.

I’m always careful about investing in property stocks because of the potential for a housing slump. A sharp drop in home sales could hit the group’s fee income. However, I think the group’s strong presence in the rental market should help to offset this risk. Even during lockdowns, rental fees remained fairly stable.

Belvoir shares currently trade around 15 times forecast earnings, with a 2.5% dividend yield. The stock has doubled over the last year and I’m not sure it’s cheap anymore.

However, I think Belvoir is a good quality business that’s well run. I’d still consider buying the stock and would certainly keep holding if I already owned it.

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Roland Head 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.

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