Strix

As I type, shares in kettle safety device manufacturer Strix (LSE: KETL) are up 70% over the last year. That’s a superb return for what is, admittedly, not the most exciting of businesses. In fact, KETL has been a winning AIM stock since coming to the market. In four years, the shares are up 173%.

This momentum might just continue. In July, the company said it was now expecting to deliver revenue growth of 50% or so for the first half of 2021, and roughly 30% for the year as a whole. Any improvement to the latter when interim numbers are confirmed in September should do the share price no harm.

I’m not the only one bullish on Strix either. Earlier this month, analysts at Liberum said the company was primed for a re-rating, due to the potential earnings growth on offer. 

Of course, there’s a chance the shares could lose steam at some point. Early holders may want to bank some profit, for example. Even so, a valuation of 24 times forecast earnings still doesn’t feel unreasonable. The solid dividend stream compensates me for choppier times too.

Inspecs

Eyewear manufacturer and distributor Inspecs (LSE: SPEC) is another AIM stock I’d buy now. Its shares are up 51% in value over the last year. In its 18 months as a listed company, SPEC has returned 86%.

All this is rather impressive considering Inspecs came to market at the worst possible time. Due to Covid, group revenue fell almost 25% to $47.4m in 2020. The firm also reported a post-tax loss of $8.9m. 

Still, next month’s interim figures should be more encouraging. Inspecs has certainly been preparing itself for better times by snapping up lens maker Norville and manufacturer Eschenback. It’s also been adding new global brand licences to its portfolio. 

Yes, a P/E of 30 is getting punchy and shares are less liquid than those of other companies (meaning price moves could be more pronounced). However, I think the ‘essential’ nature of its products makes up for this risk.

Mortgage Advice Bureau

A final AIM stock worth buying in advance of September is Mortgage Advice Bureau (LSE: MAB1). As one might expect, trading has been excellent of late, thanks to a booming UK housing market. However, shares now trade on 39 times earnings, having climbed 123% in value in 12 months. Is this too high?

It’s certainly not cheap. Then again, recent demand for housing (and, by association, MAB’s services) surely won’t grind to a halt. More people are wanting to work from home, after all. Moreover, I’d be shocked if next month’s interim results were anything but great. 

As a (mostly) buy-and-hold investor, I also think it’s important not to base an investment decision purely on a single metric. Expensive stocks can continue going up if they can carry on growing. As an aside, returns on capital are high and the firm has net cash on its balance sheet — just the sort of things I look for.

MAB’s still a buy for me.

The post 3 AIM stocks to buy before September appeared first on The Motley Fool UK.

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Paul Summers owns shares in Strix. 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.

Inspecs

Since covering the company in September, eyewear frames designer, manufacturer and distributor Inspecs (LSE: SPEC) has performed well. Its share price has climbed 45%. Over the last year, it’s up 59%.

That may seem strange considering today’s full-year numbers. Revenue fell 22.5% to $47.4m in 2020. A pre-tax loss of $8.9m was also revealed.

Of course, the usual suspect — Covid-19 — was to blame. Early on in the pandemic, Inspecs’s production site in China was impacted. Lockdowns globally then forced clients to shut stores and distribution depots closed. This was never going to be an easy ride for the £350m cap. 

On a more positive note, Inspecs revealed today that trading had significantly improved in the second half of last year. This, coupled with the emergence of effective vaccines, goes some way to explaining why the share price has remained resilient.

Whether the valuation continues increasing over the rest of 2021 is hard to say. Like most businesses, Inspecs’ near-term outlook will depend on whether we really are coming to the end of the pandemic. Although trading has recovered, it would be brave (or foolish) to assume no risk remains.

Even so, I remain bullish from a longer-term perspective. As part of its growth strategy, 2020 saw Inspecs acquiring other businesses, increasing its manufacturing capacity and adding more brands to its portfolio. A new facility in Vietnam is now up and running and the AIM-listed company’s order books are “higher than at the same time in 2020 on a like for like basis”.

Taking all this into account, I’d still be happy to buy this growth stock at its current price.

CVS Group

Since I wrote about it at the same time, it makes sense to return to look at how shares in veterinary services firm CVS Group (LSE: CVSG) have performed too.

Thanks to the huge growth in pet ownership seen over the multiple UK lockdowns, it’s no surprise to see that the shares have pretty much doubled in value. In the last year, the price is up 131%!

Encouragingly, the company reported in April that the trading momentum seen earlier in 2021 had continued. Sales remained “strong“, helped by the Royal College of Veterinary Surgeons’ decision to permit non-essential services.

As a result, CVS now expects revenue for FY21 to be better than previous expectations. Adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) will also be “comfortably ahead“.  This is exactly what investors want to hear from companies they own.

So, is it time to take profit? I’m not so sure. Since spending on pets is non-discretionary (owners consider them members of the family), I actually think there’s more upside ahead. This is exactly why top UK fund managers such as Terry Smith love this part of the market. 

CVS Group has had a great run, reflected in its rich valuation of 31 times forecast earnings. However, I’d be far more comfortable buying a slice of this company today over a similarly priced but cyclical growth stock. 

The post 2 hot UK growth stocks I’d buy today appeared first on The Motley Fool UK.

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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.

Momentum share for a stock market rally

Harry Potter publisher Bloomsbury (LSE: BMY) enjoyed a magical 2020 thanks to more of us picking up a book or 10 during lockdowns. Back in October, the firm revealed a 10% rise in revenue (to £78.3m) and 131% jump in pre-tax profit (to £3m) over the six months to the end of August. Since we’re now into our third national lockdown, I can see this performance lasting a while longer.

Bloomsbury’s financial year ends next month. However, it probably won’t be until May that the company reveals how it’s performed over the last few months. That said, this does allow me time to take a position before the news is announced. 

Of course, whether the company can sustain recent momentum once the stock market rally has run its course isn’t a given. But I’m encouraged by it having plenty of cash on its balance sheet and reinstating dividends.

Rocketing revenue

With its share price soaring in recent months, my decision to buy a stake in laser-guided equipment manufacturer Somero Enterprises (LSE: SOM) in 2020 was one of my better calls.

Somero expects to post revenue of roughly $88m for the full year thanks to excellent trading in North America. This is far more than the $80m analysts were predicting. Adjusted earnings (EBITDA) of about $26m will also be “significantly ahead” of the $21m previously expected.

I can see Somero carrying this form into 2021, even if further planned investment in staff will temporarily impact profits. Demand for its products in the US looks likely to be sustained based on feedback the company has received. A revival of business in Europe and other markets once Covid-19 is conquered is also possible.

Factor-in a special dividend from cash-rich Somero and a forecast P/E of 14 for FY21 and it looks attractive to me in a stock market rally.

Looking good

Bath-based eyewear maker Inspecs (LSE: SPEC) is another small-cap stock showing positive momentum.

It wasn’t always this way. The shares fell 25% not long after their debut on the market last February. After recovering over the summer, they fell again in September and October, highlighting the volatility of small-cap shares that investors need to be aware of.

More recently, the performance has been much better. The shares have almost doubled in value since November. That’s quite a result considering we’ve heard very little from Inspecs over this period. No matter. I think the best stocks for me to own are often the ones not making headlines.

On 28 times forecast FY21 earnings, Inspecs looks expensive. But I think the PEG (price-to-earnings ratio/earnings growth) ratio of 1.6 is worth paying attention to. This implies the shares may actually be trading at a fair-rather-than-excessive valuation given the company’s potential. Add in its global reach and non-cyclical market (those who need glasses get glasses) and I think the £350m cap becomes an increasingly enticing investment proposition.

The post With £3,000 to invest in the stock market rally, I think these UK small-cap shares will keep rising in 2021 appeared first on The Motley Fool UK.

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Paul Summers owns shares of Somero Enterprises, Inc. The Motley Fool UK has recommended Bloomsbury Publishing and Somero Enterprises, Inc. 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.

One way around this is to build stakes in companies providing products or services that are deemed ‘essential’ to daily life. Since earnings should be relatively constant (or rising), there’s less incentive to check out early. 

Here are a couple of small-cap stocks with great growth prospects I think fit this strategy well. 

Eyes on retirement

New-stock-on-the-block Inspecs (LSE: SPEC) designs, manufactures and distributes eyewear frames to global retail chains. It may not quicken the pulse like a glitzy tech share but, for me, that’s part of the appeal. Some of the best investments are those that rarely make headlines.

Unsurprisingly, Inspecs was doing rather well before arriving on the market in February. In 2019, group revenue rose 6.9% to $61.25m and pre-tax profit more than doubled to $7.35m.

Of course, all this was pre-coronavirus. Like most businesses, the pandemic has motivated the small-cap to reduce costs and save cash where it can.  

Looking further ahead, however, the investment case becomes compelling. As CEO Robin Totterman stated in May: “The structural growth drivers in the $131 billion global eyewear market remain unchanged.” Moreover, the number of people requiring vision correction looks likely to increase as we learn more about the damage done from staring at computer screens and mobile phones for too long. 

It may be early days, but shares have done very well given what 2020 has thrown at investors so far. Had you bought in early April, you’d be sitting on a near-60% gain by now. This leaves the business trading at 14 times FY21 earnings. Considering the aforementioned growth prospects, that looks pretty reasonable.

The only thing I’d watch out for with Inspecs is the buy/sell spread. The larger this is, the more you’ll need the shares to rise just to get back to break-even. 

Long-term winner

If there was one lockdown trend that stood out for me, it was the huge demand for pets. This should be great news for leading veterinary service provider and online pharmacy operator CVS Group (LSE: CVSG) once the coronavirus crisis subsides. All those new, pampered family members will need regular care for years to come.

This isn’t to say CVS hasn’t been impacted by the pandemic. During lockdown, vets were restricted to undertaking only emergency work in their practices, leading to a “significant reduction” in revenue.

In response, the company temporality shut half of its small animal practices and placed half of its employees on furlough. Thankfully, a recovery in revenues to “pre-Covid-19 levels” since has led management to predict that full-year revenue will now come in “comfortably ahead of the prior year.”

Changing hands for 22 times forecast FY21 earnings, CVS is unlikely to appeal to committed value investors. Some may also be concerned by the company’s reluctance to comment on its earnings outlook or pay a final dividend.

For me, however, all this seems very prudent. With more local lockdowns looming, the move to permanently close 33 mostly-small branches, a proportion of which were loss-making, also makes sense. 

The short-term outlook may be foggy but I think CVS is a great pick for those building their wealth for retirement.

The post Have £2,000? Here are 2 essential UK growth shares I’d buy and hold for retirement appeared first on The Motley Fool UK.

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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.