Why I’d invest £2,000 in IQE and this fast-growing small-cap now

The share price of IQE (LSE: IQE) is down more than 50% since it peaked during November 2017. The advanced wafer products supplier’s slide has been relentless this year and it looks as if the correction arose because of investor enthusiasm driving the price too high previously.

A ‘heavyweight’ appointment

The valuation looked toppy before, but today’s 85p puts the company on a forward price-to-earnings ratio of around 16.5 for 2019 when measured against City analysts’ forecasts for an almost 50% upsurge in earnings that year. At some point, the shares will stop falling, and I reckon yesterday’s news that a new Chief Financial Officer (CFO) has been appointed could turn the share price around.

Since the tragic passing of the previous long-serving CFO, Phillip J Rasmussen, earlier in the year, the directors have been searching for a high-calibre replacement. The new man will be Tim Pullen who is currently CFO of ARM Limited– the ex-FTSE 100 technology company that was taken over by Japan’s Softbank Group in 2016. Mr Pullen will take over his new desk at IQE in early 2019 after working out his notice with ARM. Executive chairman and interim CFO Dr Godfrey Ainsworth has been holding the financial fort and will continue until the handover is complete.

The appointment strikes me as ‘heavyweight’ and a great coup for the firm. I’m optimistic that Tim Pullen’s experience in the sector will combine with his ability to help drive the company’s ambitions. At the very least, this appointment puts an end to the uncertainty surrounding the issue, and the stock market will like that.

A move capturing fast-track growth

I’m also keen on Netcall (LSE: NET), which provides what it describes as “low-code and customer engagement software.” Today’s full-year figures show revenue up 32% compared to last year and adjusted, diluted earnings per share 5% higher. Fast-growing annualised cloud revenue rose a healthy 321% to make up 22% of total revenue. However, last year’s net cash position of almost £13m has been wiped out because of the August acquisition of MatsSoft Limited, described as “a leading cloud-based low-code software provider.” The firm reported net debt this year of £0.74m.

Netcall is working hard to integrate its big acquisition, which is aimed at increasing the firm’s cloud presence. The directors said in the acquisition announcement that the move opens up access to “the fast-growing low-code market,” which organisations in the public and private sector are adopting. Netcall aims to offer the service both to new and existing customers.

I think there is a good chance that Netcall has just moved into the fast lane with this acquisition. Chief executive Henrik Bang said in today’s report that he has “increased confidence” in the firm’s growth prospects. He pointed to the large size of recently announced “multimillion pound ” low-code contract wins and the “significant increase” in annualised cloud revenue as evidence of the scale of the firm’s potential opportunity to grow. I think the change in the set-up resulting from this acquisition makes Netcall an attractive share right now.

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Kevin Godbold has no position in any of the 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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