These small-cap stars still look too cheap

If you're looking for companies with great growth prospects but whose shares still offer value, it can pay to look further down the market size range. Here are two examples, both from the travel industry, that are still to register on many investors' radars.

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Solid performer

Since the EU referendum shock, small-cap holiday operator On the Beach's (LSE: OTB) shares have been on a rather lovely journey northwards. A steal when priced just above 176p back in July, they've more than doubled since (including a 15% rise over the last month alone). Based on today's interim results, this momentum appears justified.

In the six months to the end of March, Group revenue increased 7.3% to just over £38m with Group profit rocketing 33.8% to £9.9m.

As far as business in the UK was concerned, revenue climbed 7.1% to £37.5m. Once marketing costs are taken into account however, this percentage rises to 16.9% (£19.4m) with EBITDA up 23.3% to £14.3m.

Elsewhere, the company's first foray into international markets appears to be going well with revenue from its Swedish operation climbing 20% (to £600,000). H1 also saw the company launch in Norway.

At the time of writing, shares in On the Beach are down over 7%, suggesting a degree of profit-taking is underway. Given recent performance, that's to be expected. However, with management reasserting the belief that performance in H2 will be stronger than H1 (thanks to more favourable year-on-year comparisons), I suspect this slight break in momentum won't last for long.

While a price-to-earnings (P/E) ratio of 22 would suggest that On the Beach is now a fairly expensive stock to acquire, a PEG ratio of just 0.9 for 2017 indicates that investors are actually paying relatively little for every unit of earnings growth. Importantly, this is before the recent acquisition of industry peer Sunshine.co.uk -- announced yesterday -- has been taken into account.

Perfect partner

Another stock that still looks cheap is aviation services company AirPartner(LSE: AIR). Like On the Beach, shares in this market minnow have taken off since the EU vote. Since hitting a low of 65p in late July, the stock has climbed a stonking 85% to just under 120p.

In its recent full-year results (announced at the end of April), the company reported a 17.2% increase in underlying profit before tax to £5.1m with underlying earning per share climbing 10.2% to of 6.5p.

In terms of operational highlights, the company's broking division continues to deliver with performance from its Commercial Jets and Jet Card services more than making up for sluggish Freight numbers. Encouragingly, Air Partner's Consulting and Training division now contributes 10% of underlying profit before tax.

As far as the new financial year is concerned, Air Partner has stated that recent trading has been in line with the management expectations and that Q1's pipeline of work allows it to enter 2017/18 "with a degree of optimism".

Based on analyst estimates, the company is expected to grow earnings per share by 44% by this time next year, leaving the shares on a tempting valuation of less than 15 times earnings. Factor-in a 4.5% forecast yield and Air Partner looks a solid pick for value, growth and income investors alike.

Another great opportunity

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Paul Summers owns shares in On the Beach. 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.