These two high-growth small-cap stocks are just getting started

Over the past seven years, producer of natural feed additives for animal health and nutrition Anpario (LSE: ANP) has emerged as one of London’s top growth stocks. Indeed, since the beginning of 2011, shares in the company have produced a return for investors of 430% as net profit has expanded at a rate of around 10% per annum over the same period. 

Just getting started 

It looks as if Anpario’s growth story is only just getting started. Even though earnings per share are expected to fall by 1% for 2017 (according to the current City consensus) earnings are expected to grow 16% over the next two years to 19.4p by 2019. 

The one downside is that due to the firm’s explosive past growth, the shares are expensive. They currently trade at a forward P/E of 29. Nevertheless, according to a trading update published today, at the end of 2017, the company had a net cash balance of £13.6m, around 12% of its current market cap. Stripping out this cash (approximately 59p per share) gives a forward P/E of 24. This might seem like a high multiple, however compared to the likes of Anpario’s US-listed peer Neogen, which trades at a forward P/E of 54, Anpario appears to be the cheaper bet. 

Going forward, the demand for the company’s products should only grow as the world’s population demands more food. As long as the business continues to reinvest in its offering, earnings should continue to expand along with the firm’s cash balance, and with this being the case, I believe Anpario’s growth is only just getting started. 

Growth and income 

Financial services company Personal Group (LSE: PGH) is another small-cap growth stock that I believe is only just getting started. This business provides employee benefits to workers, such as short-term accident and health insurance. Demand for these services has grown rapidly over the past five years and Personal’s revenue has doubled during this period.

Management expects this trend to continue. In a trading update published at the end of October, CEO Mark Scanlon commented that Personal is “better placed than ever as we enter 2018” as its core business, coupled with new initiatives should help it win contracts from new customers. Indeed, City analysts are expecting earnings per share growth of 7.4% for 2018 off the back of revenue growth of 44%. 

Like Anpario, Personal also has a robust balance sheet, with “cash and deposits of £16.5m and no debt” reported at the end of the first half of 2017. On this basis, cash currently accounts for around 11% of the firm’s current market value. 

Such a hefty cash balance backs up the company’s dividend yield of 4.9%, which is costing around £7m per annum but is easily covered by cash generated from operations. 

The one downside to Personal is, once again, the stock’s valuation. At the time of writing the shares are trading at a forward P/E of 18.2, which might put some investors off. But considering the company’s historical growth record, coupled with its future growth potential, I believe that it’s worth paying a premium to buy into Personal’s story. 

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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.

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