2024 could be a big year for small-cap UK growth stocks. That’s because these stocks tend to outperform when interest rates are falling (most economists expect several rate cuts this year).
Looking for some small-cap shares to buy for 2024 and beyond? Here are three to consider.
A play on data and AI
First up is Volex (LSE: VLX). It’s a UK manufacturing company that specialises in power and connectivity products.
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One reason I’m bullish on Volex right now is that the company makes high performance cables for the data centre market. And, thanks to the explosive growth of data – and new technologies such as artificial intelligence (AI) – this market is absolutely booming right now.
This was reflected in the group’s recent half-year results. For the 26 weeks to 1 October 2023, revenue in its Complex Industrial Technology division was up 30% year on year to $100.6m.
Another reason is that the company serves the electric vehicle (EV) market (it recently signed a deal with Tesla). This market has enormous growth potential.
Of course, manufacturing is a cyclical industry. So, economic weakness is a risk.
However, at present, Volex shares trade on a forward-looking price-to-earnings (P/E) ratio of just 11. And at that earnings multiple, I think the risk/reward setup is very attractive.
Benefitting from green infrastructure investment
Next we have Renew Holdings (LSE: RNWH). It’s an under-the-radar company that provides engineering services to maintain and renew critical infrastructure networks and is benefitting from green infrastructure investment.
Renew has a lot of momentum right now. For the six-month period to the end of September, group revenue was up 13% year on year while operating profit was up 18%.
And looking ahead, management was confident about the future.
“We remain excited about the significant growth opportunities across the Group, underpinned by the increasing national demand for the maintenance and renewal of existing UK infrastructure, which will continue to be a domestic priority regardless of the outcome of the next election“, said CEO Paul Scott.
This is another small-cap stock with a low valuation. Currently, the forward-looking P/E ratio is just 13. I see a lot of potential at that multiple.
That said, an economic deterioration in the UK is a risk.
An online shopping play
Finally, we have dotDigital (LSE: DOTD). It’s a software company that specialises in solutions for digital marketing and is benefitting from the growth of e-commerce.
This is a company with an excellent long-term growth track record. And looking ahead, analysts expect it to continue growing.
For the year ending 30 June 2024, for example, revenue is expected to come in at £78.6m, an increase of about 14% year on year.
The valuation is very reasonable, however. At present, dotDigital has a P/E ratio of just 23. That’s not high for a software company with recurring revenues.
It’s worth noting that dotDigital recently acquired digital marketing company Fresh Relevance for £25m. Big acquisitions like this don’t always work out.
I think the deal makes sense, however, as the two companies operate in the same space.
Overall, I see a lot of potential here as we start 2024.
