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How you can profit from 3 growing small caps revisited

Some of the small caps I have recommended more regularly recently have delivered strong returns including footwear retailer Accent Group Ltd (ASX: AX1) and aerial mapping business Nearmap Ltd (ASX: NEA) in returning around 90% and 50% over just the last six months.

Around about this time last year, I also recommended 3 growing small caps for investors prepared to take on more risk in pursuit of big returns.

So let’s have a look at how three small caps I recommended around this time last year have performed since.

Lifehealthcare Group Ltd (ASX: LHC) sold for just 10.5x forward estimates of earnings per share with a 6.4% fully franked dividend yield back in March 2017. It also had a reasonable track record of growth based partly on the tailwinds supporting its medical device distribution business. The cheap looking nature of this stock didn’t escape the attention of private equity group Pacific Equity Partners who lobbed a $3.75 bid takeover bid for it in February 2018. The stock changes hands for $3.60 now and has gained 67% plus dividends over the past year.

Pro Medicus Group Ltd (ASX: PME) has been one of the small-cap stars of the past few years and sold for $5.70 on April 10. Since then the company has gone on to announce a couple of major contract wins with US healthcare operators to provide its online medical imaging platform Visage 7. As a software-as-a-service business Pro Medicus boasts attractive characteristics of high gross profit margins and recurring revenues. It also has an attractive outlook and the stock is up 45% or so since April 10 last year. The valuation looks stretched for now, but the price of Pro Medicus moves in mysterious ways and it looks a hold for now.

Medical Developments International Ltd (ASX: MVP) is the manufacturer and retailer of the ‘green whistle” Penthrox pain relief product used by emergency services or other medical professional to treat accident victims or those in pain as a result of sports injuries for example. Already widely-used in Australia it’s been signing distribution agreements across Europe, Asia, and the Middle East. The company  is still working on getting Penthrox approved in the giant U.S. market, which boasts big potential and is naturally exciting investors. As with Pro Medicus the company’s trailing financials hardly inspire and great expectations are built into today’s share price of $8.44. it sold for  $5.70 on April 10 to produce a return around 48% over the last year.

Outlook

Given Lifehealthcare is about to leave the ASX boards it’s left to consider the outlook for Pro Medicus and MVP on current valuations. For now both valuations look stretched and I’d rate these two high-quality small caps as holds.

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Motley Fool contributor Tom Richardson owns shares of PRO Medicus Ltd. The Motley Fool Australia owns shares of and has recommended PRO Medicus Ltd.

You can find Tom on Twitter @tommyr345

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.