2 small-cap stocks I’d buy in March

Recent results at these companies reveal the beginnings of profitable turnarounds, says one Fool.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in pottery manufacturer Portmeirion (LSE: PMP) dived earlier this year after it announced a slowdown in some of its major markets, including South Korea and India.

Despite this, the company has put in a decent trading performance, with revenue predicted to be over £76m for the full year. This is a record figure for the company and is around 11% ahead of the prior year.

Admittedly, this figure has been massaged by the acquisition of Wax Lyrical and favourable exchange rates. But this impressive performance in the face of difficult conditions shows just how robust the famous pottery company is.

I believe this is largely down to the company’s quintessentially British brands. They ionclude Botanic Garden, which accounts for nearly half of sales, plus Spode Christmas Tree and Royal Worcester, two established brands that have gone from strength to strength since the company bought them out of administration.

The rich history behind these names has international appeal, selling strongly in North America as well as the aforementioned Asian markets.

The company has regularly achieved strong returns on capital, averaging 15.4% over the last five years due to the pricing power behind these prestigious brands and a laser focus on operational discipline.

The company currently trades on a P/E of 15 and yields 3.1%, which is more than justified by its growth record. The company has doubled its dividend since 2008 and more than doubled earnings in the same period.

A recovering core and strong royalties

I’ve been quite critical of table-top war-gaming specialist Games Workshop (LSE: GAW) recently, largely due to a massive restructuring of its flagship game Warhammer, which I believed could alienate legions of loyal fans.

It seems I was a little hasty in my condemnation given the impressive return to growth in the core business in recent months. The company’s first-half operating profit pre-royalties jumped from £4.7m last year to £10.5m this year.

This is important, as core profits represent the success of the company’s table-top games and related products. If these games fail, the intellectual property, including the fiction created over decades, will become less valuable. Royalties depend on the success of computer games launched by other companies and are therefore inherently lumpy.

The company has struggled to grow sales in recent years, but opening a net nine new stores and another 60 new trade accounts in the latest period helped expansion kick off once more, with revenue increasing 28%.

Games Workshop has a loyal core of customers and a debt-free balance sheet. If the company can replicate its first-half figures in the second half, which includes the key Christmas trading period, it would trade on a P/E of 13, which seems a good offer for a company whose new strategy seems to be rejuvenating its growth prospects.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Zach Coffell has no position in any shares mentioned. The Motley Fool UK has recommended Portmeirion Group. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

To build a passive income flow, I’d follow this Warren Buffett approach

Warren Buffett has set up passive income streams most people can only dream about. Our writer sees some practical lessons…

Read more »

Growth Shares

As the boohoo share price falls, could it become a penny stock in 2025?

Jon Smith outlines some of the recent problems involving the boohoo share price and considers if things could get even…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Here are the worst-performing FTSE 100 shares over the last 5 years

These five FTSE 100 shares have been complete duds over the last half decade. But is there potential for a…

Read more »

Investing Articles

Nvidia stock has tripled this year! Can it keep rising?

Nvidia's latest sales update showed strong growth and the stock's been on a tear so far in 2024. So is…

Read more »