The software and services company provides customer-firms and organisations with “complete enterprise innovation management solutions including software, expertise, and best practices.” The firm’s Accolade solution covers the innovation management and new product development lifecycle, which includes strategic innovation planning, road-mapping, idea and concept development, process and project management, portfolio management and resource planning.  

International sales

The offering is popular, and Sopheon boasts some 250 customers and 60,000 users from more than 50 countries, with the majority of the operating profit earned in the US.

Indeed, there’s been a bit of a buzz about the company and its long-term potential in the investing community lately, and trading figures have been coming in ahead of expectations for a while. And I think that’s part of the problem today, which could account for the weakness in the stock on these results.

When outperformance is well known, the valuation of a company can be fully up with events, and the only thing that will move a share price higher on results day is likely to be unexpected further operational outperformance. Sopheon is reporting as expected, so any speculation baked into the price about unexpected progress is probably unwinding today. We see this over again on the stock market and it calls to mind the old adage, ‘buy the rumour, sell the fact’.

The headline figures look good with revenue almost 19% higher than a year ago, profit before tax up just over 25%, and the net cash balance shooting almost 76% higher to $16.7m. The directors expressed their satisfaction and confidence in the outlook by slapping another 30% on the dividend.

Going for growth

Chairman Barry Mence explained in the report that Sopheon has a “large diversified blue-chip client base, a comprehensive software platform and deep sector expertise.” There were 18 new customer wins during the year, which compares to 13 in 2017, and he believes the time is right for Sopheon to accelerate investment and “solidify” its “leadership position.” The company has around $20.6m of sales visibility and the pipeline includes “a number of large opportunities.”

But Sopheon’s success has not gone unnoticed. Even at today’s share price close to 1,031p after this morning’s decline, the stock is more than 1,000% higher than it was three years ago. Had you been holding, that would have been an investing success by most standards. But even now, the market capitalisation sits near to just £116m, which means the firm remains in small-cap territory. I can’t help believing that the forward potential is still large for the company and its investors.

If you dig in to research Sopheon you’ll find some impressive quality metrics and a full-looking valuation. I believe the long-term potential of the company is attractive and would be inclined to look at setbacks in the share price like today’s as more of a buying opportunity than a reason to abandon the stock.

The post Is Sopheon a falling knife to catch, down 10% today? appeared first on The Motley Fool UK.

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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.

When a growth share becomes widely followed, speculation can drive up the valuation so high that any investment you make in the company’s shares can face downside risks brought on by a valuation reversal. And that can happen despite strong operational progress in the underlying business.

New to the stock market and growing fast

I like the look of two small-cap shares and I think they could do well for investors during 2019 and beyond. The first is Filta Group Holdings (LSE: FLTA), which provides cooking oil filtration and fryer management services to restaurants and other food establishments. During 2017, around 72% of the firm’s revenue from continuing operations came from the US and 28% from the UK.

The company started up around 20 years ago in the UK and has expanded both at home and abroad, organically and through acquisitions. The outlook is bullish and the firm expects to grow further by both methods in the short, medium and long term. Yet despite its long history, Filta only arrived on the stock market with its Initial Public Offering (IPO) at the end of 2016, which I see as another positive. I believe firms can be at their entrepreneurial best and often well-financed when they first go public, which means a strong growth phase can follow. Getting into a share within a short time following its IPO can work out well for investors in some cases.

Decent quality indicators

If you dig into Filta, you’ll find decent quality indicators such as a return on capital running close to 21% and an operating margin at about 15%. There’s also a robust outlook for earnings growth, a reasonable valuation given the firm’s prospects and a handy dividend to collect. Meanwhile, the balance sheet is strong with a decent net cash position. There’s a lot to like about Filta despite its small market capitalisation close to £69m.

The second share I’m keen on has a higher market capitalisation near £118m. Sopheon (LSE: SPE) provides software and services for product lifecycle management. In 2017, around 60% of revenue came from America and 40% from Europe, but 92% of the operating profit was earned across the pond and just 8% from Europe, so America is an important geography for the firm.

Building a blue-chip client base

Sopheon has been making solid progress building up its blue-chip client base and the outlook is positive. Other attractions include a strong balance sheet with a net cash balance and robust quality indicators, such as a return on capital of around 30% and an operating margin running at about 20%.

Although the valuation looks full and fair given the growth on offer, there is a small dividend to keep investors company and a recent history of robust operational and share-price momentum. I think both these companies would sit well in a diversified portfolio aimed at capturing ongoing growth potential. 

The post These are my top 2 small-cap shares for 2019 appeared first on The Motley Fool UK.

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• Here’s 1 passive income stock yielding 10%+ today!
• A 7.1% forecast yield and 51% below ‘fair value’! 1 of my top FTSE stocks to buy right now
• £20,000 invested in HSBC shares 2 years ago is now worth…
• No savings in your 40s? Start drip feeding £500 a month into UK shares in an ISA to aim for financial freedom
• Consider these FTSE 100 bargain shares in a Stocks and Shares ISA!

Kevin Godbold owns shares in Filta Group and in Sopheon. 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.

Now though, the stock appears to have a wider margin of safety. As such, it could offer stronger capital growth potential than the FTSE 100. Alongside another growth stock that reported an encouraging update on Friday, it could be worth buying, in my opinion.

Improving prospects

The company in question is software and expertise specialist for Enterprise Innovation Performance Sopheon (LSE: SPE). The company has seen continued commercial delivery in the final months of the 2018 financial year. As a result, it expects that revenue for the year will be in line with previously upgraded market expectations. It also believes that there could be a stronger outperformance at the EBITDA and pre-tax profit levels.

The company is forecast to post a rise in earnings of 27% in the 2019 financial year. This would be a strong performance and, if achieved, would be the fourth consecutive year of earnings growth.

With Sopheon’s share price having risen by 154% in the last year, it is perhaps surprising that it still appears to offer a wide margin of safety for new investors. It has a price-to-earnings growth (PEG) ratio of just 0.9, which suggests that it may offer growth potential. With it seeming to have a sound growth plan, it may be able to deliver continued share price increases over the medium term.

Turnaround potential

While the Boohoo share price has declined in recent months, the outlook for the company appears to be relatively impressive. It is forecast to post a rise in earnings of 18% in the current year, followed by further growth of 24% next year. These growth rates could stimulate investor interest in the company, with it seeming to have a solid strategy that has been successful over a sustained period.

After falling heavily in recent months, the stock now has a PEG ratio of around 1.5. This indicates that while there may be cheaper options available in the retail sector, few retail companies with major exposure to the UK may be able to compete in terms of their growth potential.

With Boohoo having an online focus, it may be well-placed to benefit from a continued shift of consumers towards online options. Recent research suggests that there may be twice as many physical shops in the UK than are required. This means that a number of the company’s retail segment peers may be forced to close stores and incur further costs from the disruptive forces of the internet. This could provide it with a competitive advantage and could lead to further growth over the long term.

The post I think the Boohoo share price could be a better growth play than the FTSE 100 appeared first on The Motley Fool UK.

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• Here’s 1 passive income stock yielding 10%+ today!
• A 7.1% forecast yield and 51% below ‘fair value’! 1 of my top FTSE stocks to buy right now
• £20,000 invested in HSBC shares 2 years ago is now worth…
• No savings in your 40s? Start drip feeding £500 a month into UK shares in an ISA to aim for financial freedom
• Consider these FTSE 100 bargain shares in a Stocks and Shares ISA!

Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo group. 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.

However, a number of shares have been able to beat the index during this time. GlaxoSmithKline (LSE: GSK) has performed well, rising by around 15%. Similarly, software and services provider Sopheon (LSE: SPE) gained 10% on Monday following its trading update. This takes its gain for 2018 to around 180%. Looking ahead, could there be further growth to come from either stock?

Impressive performance

Sopheon’s trading update showed that the third quarter of the year was exceptionally strong. Momentum since the second quarter has been maintained, and a number of further transactions have been signed. This has resulted in a record third quarter. Contract wins have included two material contracts booked during the final days of the quarter which have helped to break revenue visibility through the $30m level.

The company remains optimistic on its future outlook. It views the continued delivery of commercial results as indicative of the growing maturity of the market that it serves, while its sales pipeline activity for the balance of the year remains robust.

Sopheon is expected to report a rise in earnings of 27% in the next financial year. This puts it on a price-to-earnings growth (PEG) ratio of 0.9, which suggests that it continues to offer good value for money. Therefore, even after its sharp rise in value over recent months, there could be further upside ahead.

Improving outlook

The prospects for GlaxoSmithKline also appear to be improving. The company has the potential to capitalise on the world’s ageing population through its focus on consumer healthcare products, vaccines and pharmaceutical products. Its recent decision to focus on a smaller number of higher-reward products within its pipeline may provide it with a stronger growth outlook over the long run, which could help it to justify a higher valuation.

At the present time, the company has a dividend yield of around 5.2%. This suggests that there could be a margin of safety on offer. With the company expected to report a 4% rise in earnings in the next financial year, dividend growth could be restarted after an extended period of flat payments. This has helped to boost the company’s dividend cover so that it now stands at 1.4. This suggests that there could be improving income investing potential on offer over the medium term.

With GlaxoSmithKline having a diverse and relatively defensive business model, it could prove to be popular should the FTSE 100 experience uncertainty over the coming years. After a 10-year bull market, defensive shares could become more enticing to long-term investors over the next few years, with the chances of a further decade of uninterrupted stock market growth being unlikely.

The post GSK and Sopheon’s share prices have beaten the FTSE 100 by 20%, is it time to buy? appeared first on The Motley Fool UK.

More reading

• Here’s 1 passive income stock yielding 10%+ today!
• A 7.1% forecast yield and 51% below ‘fair value’! 1 of my top FTSE stocks to buy right now
• £20,000 invested in HSBC shares 2 years ago is now worth…
• No savings in your 40s? Start drip feeding £500 a month into UK shares in an ISA to aim for financial freedom
• Consider these FTSE 100 bargain shares in a Stocks and Shares ISA!

Peter Stephens owns shares of GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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.

But can this small-cap continue to beat the market? Today I’m going to try to answer this question.

Growth revival

Looking at the company’s historical numbers, it is immediately clear why shares in Sopheon have done so well over the past two years. 

The group didn’t break even until 2015. Another healthy year of growth in 2016, convinced the market Sopheon’s profitability was sustainable. Since then, the firm has gone from strength to strength.

Today, the group has reported that pre-tax profit hit $2.9m in the six months to the end of June, up 62% year-on-year. Revenue for the period increased by around 27% to $15.9m.

Unfortunately, sales and marketing expenses also jumped, rising 17% to $4.1m. Although, it is unsurprising that costs have grown as the business has expanded.

For the full-year, Sopheon is now expecting revenue of $27.2m, down slightly from the $28.5m reported for 2017, but significantly above the $23.5m guidance given at the time of the company’s annual general meeting in June.

If this momentum continues, I reckon the company could end up beating its own forecasts. Indeed, the firm notes in its half-year report that performance was better than expected as “both the market, and our reputation and position, continue to advance.” Put another way, it looks as if Sopheon is benefitting from a snowball effect. 

Management is so confident of the outlook for the business, earlier in the year the firm declared its first ever dividend of 2.5p per share.

Sopheon is making all the right noises, and I believe the company’s growth is only just getting started. With this being the case, I’m not put off by the stock’s forward P/E of 23.7. With $15.5m of net cash on the balance sheet as well, this business seems to have less risk than many of its fast-growing tech peers.

Complex business

With a market cap of around £100m, Sopheon might be too small for some investors. If you’re looking for a bigger tech play, Microgen (LSE: MCGN) is one of my favourite picks in the space.

It offers a highly technical and specialist service to customers in the financial services sector. It provides software to help fund managers administer assets under management, among other things.

As the volume of regulation the financial services sector has to deal with has increased, demand for Microgen’s products has jumped. Net profit has doubled over the past five years. Analysts are expecting a slight decline in EPS this year, but growth is expected to return in 2019. The figures indicate that the stock is trading at a 2019 P/E of around 21, which I reckon is a fair price for this business.

In fact, you could argue the company deserves a higher multiple because it’s clients are unlikely to switch products regularly due to the complexity of changing over an entire computer system and the possibility of customer data loss. As Microgen continues to grow, the shares could head much higher in the years ahead.

The post These 2 small-caps could make you rich appeared first on The Motley Fool UK.

More reading

• Here’s 1 passive income stock yielding 10%+ today!
• A 7.1% forecast yield and 51% below ‘fair value’! 1 of my top FTSE stocks to buy right now
• £20,000 invested in HSBC shares 2 years ago is now worth…
• No savings in your 40s? Start drip feeding £500 a month into UK shares in an ISA to aim for financial freedom
• Consider these FTSE 100 bargain shares in a Stocks and Shares ISA!

Rupert Hargreaves owns no 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.