Have £1,000 to invest? I’d consider these growth stocks crushing the FTSE 100

Considering the FTSE 100 has only returned just north of 12% over the past five years, it’s no surprise that domestic investors are desperate for growth stocks to beat this pitiful performance from the LSE’s large-cap index.

Thankfully, there are two stellar small-caps I’ve got my eye on that are already thrashing the FTSE 100 and could continue to do so for a long time to come.

Dialing up growth in spades

The first is £230m market-cap customer communications specialist IMI Mobile (LSE: IMO). The company helps major clients such as Vodafone, Just Eat and Tesco keep in touch with their millions of customers online and through text messages. That includes everything from sending discount offers to booking appointments and providing updates on parcel delivery schedules.

In the year to 31 March, the company’s revenue rocketed 46% higher to £111.4m, thanks 7% organic growth and bolt-on acquisitions. Thus far, these acquisitions have been used to both broaden the company’s suite of products and move into growth markets like the US, Canada and Asia.

While profits last year grew more slowly than revenue, with adjusted EBITDA up 17.4% to £13.4m, the market clearly thinks this strategy has merits. Over the past year, the company’s share price has increased 89% and I see good potential for this tremendous growth to continue.

For one, the company is finding great success in signing larger contracts with existing customers as well as moving into new markets, like healthcare via a contract with the NHS. Plus, with some 85% of its revenue last year recurring in nature, it boasts high revenue visibility, solid margins and positive cash flow – which together, with a net cash position at year-end, provides further firepower for acquisitions.

IMI Mobile is not cheap (at 24 times forward earnings) but with a great record of organic and inorganic growth and a management team that owns a significant stake in the business, I see plenty of reasons to expect good things from the company in the future.

Painting a pretty picture

Another small-cap trouncing the FTSE 100 is cosmetics business Warpaint London (LSE: W7L). Since listing its shares in December 2016, their price has rocketed over 80%, well ahead of the meagre 5% return from the FTSE 100 over this period.

Half-year results released by the company this morning show why the market has so warmly embraced it. In the six months to June, sales rose 38.7% to £18.4m, thanks to strong like-for-like expansion of 7.3%, the acquisition of a competitor, and the purchase of its US distributor.

The acquisition of new brands pushed margins down during the period and adjusted operating profit of £2.8m was lower than the £3.1m notched up this time last year. However, the group made good progress on proforma margins. It should also benefit from rising margins again as it begins to sell these brands through its distribution network and cuts down on redundant costs.

Looking ahead, there’s great potential for the company as it benefits from fast-increasing demand for make-up products from young people, and pushes into massive markets such as the US and China.

At its current valuation of 17 times forward earnings, I think Warpain London is attractively valued considering its record of growth, profitable nature, net cash position, high insider ownership, and small-but-growing 1.68% dividend yield.

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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has recommended Just Eat and Tesco. 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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