Eleco (LSE: ELCO) could be one such small cap, in my opinion. Here’s why!

Software for building projects

Not all small caps are well-known, so I reckon it’s prudent for me to introduce Eleco. It is a software-as-a-service (SaaS) business that provides project management and operations-based solutions in the construction and building industry. In simpler terms, it helps firms manage construction projects through the use of its software.

Before we dive into the pros and cons of buying Eleco shares, let’s take a look at the shares’ recent performance. Over a 12-month period, they’re up 22% from 63p at this time last year to current levels of 83p.

The investment case

Despite being in penny stock territory, there are lots of positives for me to bear in mind when considering snapping up the shares.

To start with, the business is profitable and has been on a good run of performance in recent years. It’s not a start-up or just finding its feet, like many other penny stocks. I think this is perfectly signified by the fact that it recently won the ‘Project Management Software of the Year’ award for the 10th consecutive year at the annual Construction Computing Awards 2023.

Next, Eleco’s performance growth has been positive in recent years. Switching to a recurring revenue model has been a good move as this helps boost performance and provide stable revenues. Eleco has started rewarding investors, and the shares currently offer a dividend yield of 1.6%. However, it’s worth remembering that dividends are never guaranteed.

Finally, one of the things that emerge from an economic downturn are promises of construction of infrastructure. These include homes, roads, and more to help stimulate the economy. I reckon Eleco could capitalise on a potential construction boom to come, which should boost performance and returns.

From a bearish perspective, shorter-term performance may be impacted by the current economic and geopolitical turbulence. I’ll keep an eye on upcoming performance updates to gauge whether the business has been affected.

In addition to this, the threat of larger software firms entering the space could dent Eleco’s growth. Plus, a takeover bid is a looming spectre I can’t ignore. The latter isn’t necessarily a bad thing. If I bought shares, I may make a profit if they were snapped up for a higher price. This could be the case if the business continues to do well and grows.

What I’m doing now

If I had the spare cash to invest right now, I’d be willing to buy some Eleco shares. Its growth trajectory to date, performance track record, passive income opportunity, and potential future prospects excite me and have helped shape my opinion.

Plus, Eleco shares look decent value for money on a price-to-earnings ratio of 18. This is decent for a profitable, dividend-paying SaaS firm based on the industry average.

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Here, I’m going to highlight three high-growth penny stocks to consider for 2024 and beyond. All three companies have momentum right now, and I think they’ve a lot of potential from an investment perspective.

Eleco

First up is Eleco (LSE: ELCO). It’s an under-the-radar software company that specialises in solutions for building/project management. It recently won the ‘Project Management Software of the Year’ award for the 10th consecutive year at the annual Construction Computing Awards 2023.

Eleco’s growth has been rather muted in recent years. However, growth now appears to be picking up, thanks to a shift to a recurring revenue or software-as-a service (SaaS) business model.

For 2024, analysts expect the company to generate revenue growth of around 16% and earnings growth of around 25%. That’s a decent level of growth.

One thing that caught my eye here is the fact Eleco recently raised its interim dividend by a whopping 25%. This suggests management is very confident about the future.

Of course, a weak macro environment is a risk with Eleco. This could negatively impact the building industry.

Taking a longer-term view however, I like the look of this software stock. The forward-looking price-to-earnings (P/E) ratio is 19, which is not high for a profitable SaaS company.

hVIVO

Next we have hVIVO (LSE: HVO). It’s a small healthcare company that offers services for clinical trials and lab testing and serves a number of the top 10 global biopharmaceutical companies.

This is a business with a lot of momentum right now. Back in September, it reported revenue growth of 52% for the six-month period ended 30 June. At the time, it also said it intends to start paying annual dividends soon (again, this is a clear sign of confidence from management).

Meanwhile, in December, the company said that recent trading has been ahead of guidance.

I will point out that while the global pharmaceutical industry looks set for long-term growth, there could be ups and downs along the way. So there’s no guarantee the company’s momentum will continue.

At a P/E ratio of 20 however, I think the penny stock has a lot of potential. And it’s worth noting that rival Ergomed recently received a takeover offer.

Creo Medical

Sticking with the healthcare sector, the third stock I want to highlight is Creo Medical (LSE: CREO). It’s a medical device company that specialises in instruments for endoscopic (minimally invasive) surgery.

Creo’s flagship product, Speedboat Inject, looks really interesting. A multimodal endoscopic instrument, it can be used by surgeons to dissect, cut out, inject, and more.

The company is certainly having a lot of success with this product. In the first half of 2023, the company saw a 42% year-on-year increase in the volume of procedures with Speedboat Inject and a 44% increase in its user base from the end of 2022.

Now this is the riskiest of the three penny stocks, to my mind. That’s because the company isn’t yet profitable.

However, with revenues forecast to rise 24% in 2024, I think it’s worth a closer look right now.

The post 3 high-growth penny stocks to consider buying for 2024 appeared first on The Motley Fool UK.