MENU

Why these 2 small-cap shares have doubled in value in a year

The ASX Small Ordinaries index has performed strongly over the past 12 months – up almost 16% compared to 9% for the S&P/ASX 200.

There have been a few standout performers in the small-cap index – notably the two companies below.

Clover Corporation Limited (ASX: CLV)

Clover Corporation has a market cap of about $259 million. It is engaged in the business of the refining and sale of omega-3 oils used in infant formula, supplements, and medical foods. As a mostly B2B business rather than a consumer brand-centric business, I think it represents a less risky play for investors than the pure infant formula businesses such as Bellamy’s Australia Limited (ASX: BAL) and Bubs Australia Ltd (ASX: BUB).

Clover had a cracking results season which didn’t seem to attract much attention. Revenue increased by 32% to $62.9 million and net profit increased by 109% to $7.6 million. The company also finished the financial year with a strong balance sheet and holding about $7.9 million in cash.

What I really like about Clover is the growth opportunities. The EU has passed legislation that all infant formula sold within its borders by 2020 must contain a prescribed minimum level of Omega 3. This provides Clover with a massive opportunity together with their investments in new products and manufacturing facilities.

Clover Corporation shares are trading at $1.58 on a PE of about 34 compared to Bellamy’s of 27 – so it is not cheap. However, it’s Price Earnings to Growth (PEG) ratio is about 1 so I don’t think the company is overvalued given its potential.

Nearmap Ltd (ASX: NEA)

Nearmap has a market cap of about $770 million. It provides geospatial maps and aerial imaging technology for governments and private enterprise clients in Australia, New Zealand, and the United States.

Nearmap’s earnings for 2018 were impressive – 2-year 35% annual compound growth in ACV (annual contract value) to $66.2 million in 2018. The share of revenue from US operations grew from 20% in 2017 to 26% in 2018 to $17.4 million. What’s exciting investors with Nearmap is the addressable market, which in the US alone is estimated to be worth over $1 billion.

Although the company reported an $8 million loss for 2018, this was largely due to increased expenditure on sales and marketing in the United States. The Australian operations reported a segment profit of about $22 million on sales of $42 million. This highlights the potential earnings powerhouse this business could be if it captures a material share of the US addressable market.

Nearmap shares are trading at $1.74. This is about 12 times current revenue. Investors are clearly looking at the growth potential of this business. However, achieving market dominance in America will not be easy. There are some dominant players like Eagleview and ESRI which will present competitive challenges for Nearmap. How well it executes on the US strategy will determine the share price trajectory over the next 12 months.

Top Australian Stock Picker Just Issued Rare “Double Down” Buy Alert

Discover why this legendary Australian stock-picker just issued a “Double Down” buy alert to his exclusive group of insiders… and why he’s convinced this might be the single most attractive entry point for years to come.

Simply click here to get started and access our secure sign-up page.

Motley Fool contributor matthew reynolds owns shares of Clover Limited and Nearmap Ltd. 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.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!