Two spectacular small-caps trading at bargain valuations

Fast-growing small-cap stocks often trade at eye-wateringly high valuations. Having said that, it's not impossible to find companies that offer impressive growth at attractive valuations. Here's a look at two smaller growth stocks that appear to be trading at bargain valuations.

XLMedia

XLMedia(LSE: XLM) is an online performance marketing company that assists in boosting internet traffic for its customers. The company has specific expertise in the online gaming sector, where it partners with over 150 online gaming operators in more than 20 countries.

Online gaming is a huge growth area at present, worth around $32bn globally, and XLMedia is enjoying strong momentum as a result. Indeed, over the last two years revenue has more than doubled from $50.7m to $103.6m and earnings per share have grown from 6 cents to 12 cents per share.

The growth looks set to continue, with City analysts pencilling-in revenue and earnings of $135.4m and 13 cents for FY2017, growth of 31% and 8% respectively. The group has no debt and had cash of $35m in the bank at the end of 2016. Another key attraction of the firm is the generous dividend on offer. The company paid out dividends of 7.6 cents last year, equating to a yield of 4.7% at the current share price. The payout is covered 1.6 times by earnings.

However, despite these impressive numbers, it does not have the same kind of lofty valuation that many of its small-cap peers have. Trading on a forward looking P/E ratio of just 12.5 right now, the company appears to offer strong value, given recent growth. The stock has trended up strongly over the last 12 months, rising nearly 100%, however with the valuation still relatively low, I don't see why the uptrend can't continue from here.

Taptica International

Also trading at what appears to be excellent value is mobile advertising technology company Taptica International(LSE: TAP). Headquartered in Israel, it offers artificial intelligence-based solutions for mobile advertising and has an impressive list of clients including Amazon, Disney and Facebook. Mobile advertising is another prolific growth area right now, and profitability at Taptica is booming, with adjusted earnings per share jumping from 10.6 cents in FY2014 to 26.3 cents last year.

Recent full-year results were excellent, with revenue surging 66% and adjusted EBITDA climbing from $7.4m to $25.7m. Analysts forecast earnings of 35 cents for FY2017, meaning that, despite a spectacular rise in the share price from 80p to 300p over the last year, the stock trades on a forward looking P/E ratio of just 11.3.

So why the low valuation? Several explanations come to mind. First, it's possible that investors have become weary of companies headquartered outside the UK. Foreign-based stocks such as Globo, InternetQ, Plus 500 and Telit Communications have all seen their share prices punished heavily in recent years for various reasons, and perhaps investors are approaching Taptica with caution as a result.

Second, it's worth noting that Chairman Tim Weller was also Chairman of InternetQ in the past, a stock that saw it's share price fall dramatically back in late 2015. Lastly, with a market cap of just £185m, perhaps Taptica is genuinely flying under the radar of many investors. Either way, in my opinion, the stock warrants a closer look.

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Edward Sheldon owns shares in Telit Communications. 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.

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