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Why these small caps have surged in 2018

The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) is down around 4% for 2018 at the time of writing. Despite the weakness at the larger end of the market, a number of emerging small caps have managed to significantly outperform the general market with large share price gains in 2018.

Here are 2 such stocks.

Clover Corporation Limited (ASX:CLV)

Clover’s share price is up 27% to 93 cents in 2018 with a current market capitalization of $153 million. The company’s share price gains in 2018 have occurred after the release of its half yearly earnings report 2 weeks ago. Clover delivers omega-3 and omega-6 products to infant nutrition and medical foods manufacturers. The increased demand for infant formula in China has been a major catalyst in improving the company’s fortunes. Net sales revenues for the January half year grew by 60% over the prior corresponding period to $31.0 million with net profit after tax soaring 209% to $3.2 million.

The outlook for the second half was also bullish and might explain the share price appreciation post earnings despite the general market turmoil. Management expects that order patterns in the second half will be consistent with first half sales and the all-important regulatory environment in China is projected to remain stable.

Nearmap Ltd (ASX:NEA)

The share price of aerial mapping company Nearmap has risen 53% to 91.5 cents in 2018 with a current market capitalization of $357 million. The company’s fortunes have been boosted in 2018 from rising revenues and an increase in annualised contract value (ACV) for its aerial imagery. The company posted a 27% increase in revenues to $24.7 million after a 10% rise in the company’s subscriber base and a 20% jump in average revenue per subscription to $6,600. Nearmap’s ACV rose an impressive 31% over the prior period to a record $54.2 million.

The free cash flow of Nearmap’s operations in Australia continue to partially fund its expansion into the United States which is losing money as it attempts to achieve scale in the early stages of its rollout. Cash burn for the overall group during the December period was approximately $8 million with $20 million in cash left at the end of December.

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Motley Fool Contributor Tim Katavic has no financial interest in any company mentioned. The Motley Fool Australia owns shares of and has recommended Nearmap Ltd. 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.

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