Could these two small-cap growth champions make you a million?

With earnings growing rapidly, these two small-caps are on track to produce enormous returns for investors.

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.

Eckoh (LSE: ECK) is not your typical growth stock. After a successful 2013 and 2014, the company floundered for two years before finally waking up at the beginning of this year. 

Year-to-date shares in the company have gained 40% thanks to improved trading, and it looks as if this is set to continue. According to a trading update from the firm today, for the six months to the end of September, the group achieved double-digit percentage year-on-year growth in both revenue and gross profit. 

In the UK, trading is going to plan with revenue coming in at a similar level to the same period last year. Heading into the second half, management reports that the firm has a robust pipeline of deals in progress. Over in the US, where management has been concentrating on growth, the push is going well with seven contract wins worth $5.1m secured during the half year, up from three wins worth $2.7m the year before. 

Since 2014 when Eckoh entered the US market, the firm has won 30 contracts and growth is picking up. The company has secured the same volume of contracts during the past six months as were won during the full 12-month period ending 31 March 2017.

Global leader 

Eckoh is a global provider of secure payment products and customer contact solutions, which include the group’s patented CallGuard software that can be deployed on a client’s site to remove sensitive personal and payment data from contact centres. The company is capitalising on the shift away from brick & mortar stores towards an online shopping experience as consumers seek more for less. And as this market expands, City analysts are expecting big things from the firm. 

Indeed, the they are forecasting earnings per share growth of 172% for the fiscal year ending 31 March 2018, followed by growth of 16% for the following financial year. Looking at today’s trading update, it would appear that the company is on track to hit these targets. Even though the shares look pricey, trading at a forward P/E of 31.5, considering Eckoh’s explosive growth rate, I believe investors will be able to pocket a healthy profit even buying at this level. 

Exceptional level of demand 

Another top growth champion is Microgen (LSE: MCGN). Over the past year, its shares have risen 140% as demand for the company’s services has exploded. 

The tech company reported earnings growth of 28% and 34% for 2015 and 2016, respectively. It looks as if the group is on track to report a similar performance this year. At the beginning of July, management reported that there had been an “exceptional level of demand” for its Aptitude Software, which is designed for the financial services industry. 

I believe that as regulators demand more of financial firms, all of which are trying to keep costs low, companies like Microgen will benefit as software takes the place of humans. And the City seems to agree. Analysts are projecting earnings per share growth of 24% for 2017 and 20% for 2018 justifying the high valuation of 28.7 times forward earnings. But considering the high level of demand for the latest products, I believe that the firm could smash City expectations for this year, which would mean that this valuation is out of date. 

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.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »