Are 88 Energy Ltd, Dart Group PLC And Vertu Motors Plc 3 Must-Have Small-Caps?
It's been a superb year for investors in Jet2.com operator Dart Group(LSE: DTG). The airline's share price has soared by 59% during the period as an improving economic outlook has caused demand for flights to increase. And with the price of oil falling and staying low, sentiment in the wider airline sector has improved somewhat, too.
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However, the main reason for Dart Group's share price rise has probably been the anticipated rise in its profit. For the financial year to 31 March 2016, Dart is expected to have recorded a rise in its bottom line of 71% and so its share price increase could have been due to improving investor sentiment.
Looking ahead, Dart is forecast to record a fall in net profit of 13% this year and 31% in the following year. This could cause investor sentiment to come under a degree of pressure, but with Dart having a price-to-earnings (P/E) ratio of just 11.6, its margin of safety seems to be sufficiently wide to merit purchase even with a rather uncertain outlook.
Improving sentiment
Also rising in the last year have been shares in Vertu Motors(LSE: VTU), with the automotive retailer recording a rise of 8%. As with Dart Group, much of this rise has been due to improving investor sentiment in the outlook for Vertu's operating sector. Although concerns have arisen for the growth of the Chinese economy, the automotive sector continues to offer a robust growth outlook.
Evidence of this can be seen in Vertu's earnings forecasts. In the next two years its bottom line is expected to rise by around 12%, which is a relatively impressive rate of growth. However, when this is combined with Vertu's P/E ratio of just 9.7, it equates to a price-to-earnings-growth (PEG) ratio of only 0.8. This indicates that Vertu's share price could be set to rise at a rapid rate. And with it having a yield of 2.5% from a dividend which is covered over four times by profit, there are likely to be excellent dividend prospects ahead.
Power performer
Of course, Vertu and Dart Group's share price rises are rather disappointing when compared to 88 Energy's (LSE: 88E)422% gains since the turn of the year. The reason for such a rapid rise in its valuation has been positive news flow, with 88 Energy making a major discovery in the US and following that up with an increase in the independent resource estimate for the Icewine project in Alaska.
While further gains can't be ruled out, 88 Energy remains a highly volatile and relatively risky stock to hold. For example, its shares have been up by as much as 775% this year but have slipped back somewhat. As such, buying could lead to major gains or losses in the short run and while 88 Energy has the potential to make strong gains in the long term, it may be best to look elsewhere for more balanced risk/reward opportunities unless, of course, you're a less risk-averse investor.
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Peter Stephens owns shares of Dart Group and Vertu Motors. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
