Two smoking small-cap stocks I've added to my watchlist

The share prices of small caps Tristel(LSE: TSTL) and Marlowe(LSE: MRL) have seen stellar rises of late -- up 21% and 33% respectively over the last three months. Here's why I've added both to my watchlist.

Overseas growth

£91m cap Tristel is a manufacturer of infection control, contamination control and hygiene products. Based on today's encouraging trading update, I'm confident it won't remain a market minnow for much longer.

For the year to the end of June, the company expects to book turnover "inexcess of" £20m, at least 17% more than the £17.1m achieved in 2016. At £4m, pre-tax profits are predicted to be just over 21% higher than those achieved 12 months earlier.

Aside from the fact that these numbers are ahead of market expectations, the most encouraging snippet from today's update was surely confirmation of the company's growing presence outside of the UK. In H2, revenue from overseas operations contributed 50% of that achieved by the company as a whole -- a 16% improvement on the numbers from H1. This huge amount of growth over such a short period means that overseas revenue is now expected to contribute 47% of that achieved for the full year -- a record for the company.

Tristel attributes much of the aforementioned rise in overseas revenue to last July's £950,000 purchase of its Australian distributor. Elsewhere, the company has entered the North American Market and also invested $750,000 in Mobile ODT -- a business focused on "combining smartphone technology with hand-held medical devices for point-of-care diagnostics".

Its finances remain in good order. While cash balances -- at £5.1m -- were slightly reduced from 2016 's level (£5.7m), the company has no debt on its books.

With excellent growth credentials, defensive attributes and rising returns on capital employed, this is surely one company worth keeping an eye on.

Acquisition-friendly

Recent full-year results from £124m cap support services group Marlowe showed a company with serious growth ambitions.

To recap, the company achieved just under £47m in revenue over the year to the end of March and adjusted EBITDA of £4m. Like Tristel, Marlowe was able to boast a net cash position (£3m).

Perhaps more importantly, it completed and integrated eight acquisitions over those 12 months, demonstrating how keen it is to become a major player in the fragmented Fire & Security and Water Treatment markets.

Since the end of the reporting period, Marlowe has added Advance Environmental Limited and Ductclean UK to its list of purchases. In keeping with CEO Alex Dacre's earlier proclamation that the company had a "well-developed pipeline of attractive opportunities", the latter allows Marlowe to enter the air hygiene market -- one its believes offers "significant scope for consolidation".

I can see the shares climbing higher for some time to come, particularly as the recent tragedy at Grenfell Tower is likely to generate huge interest in the fire protection services offered by the company.

Only wishlist?

You might wonder why I've added the above companies to my watchlist/wishlist and not purchased them. For me, it's all down to their current valuations. Right now, both shares trade on 28 times forecast earnings, suggesting a lot of good news is already priced in.

While there's no guarantee that Trisetl and Marlowe will ever be cheaper, I believe it might be prudent to wait in the hope of a general market dip before buying into either.

A better opportunity?

Of course, there are lots of other opportunities available for eagle-eyed investors lower down the market spectrum. One top small-cap that's caught the attention of the Motley Fool's Head of UK Investing appears to be off many investors' radars.

To find out more, just click here. Mark Rogers' special report is available completely FREE of charge and without obligation.

Paul Summers has no position in any shares 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.

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