2 top AIM small-caps I'd buy in March

Updated: 
Growth

Any investor who's been around long enough will likely have an AIM horror story or 10 to tell. And although the LSE's junior bourse certainly has its fair share of companies with a checkered past there are plenty of great companies listed there that are posting stellar results for investors willing to do due diligence.

Rapid yet sustainable growth

One of them is Keyword Studios (LSE: KWS), a global provider of back-office testing, localisation and quality control services to the video game industry. Much as some species of fish live a good life cleaning much larger fish, Keyword is growing rapidly by taking care of smallish but critical issues such as audio recording in foreign languages and bug testing that makers of AAA games find too time consuming or don't have the skills for.

The value of the company's services to bigger game makers is clear in the 30% rise in like-for-like sales it posted in the half year to June. And once you include the company's frequent acquisitions (eight in 2016 alone). total sales jumped an even more impressive 77% year-on-year.

There's no reason to believe this pace of acquisitions will slow anytime soon either as the industry is highly fragmented. These purchases also help drive organic growth as cross-selling opportunities are legion and game makers increasingly trust Keyword to take care of more and more behind-the-scenes tasks.

Best of all, the company is expanding rapidly but not doing so in willy-nilly. The acquisitions it is making are highly profitable and becoming more so as they're integrated, which we see in action with the 177% rise in pre-tax profits in H1 2016. And a healthy balance sheet with EUR8m in net cash provides the firepower for further acquisitions in 2017. The company's shares are pricey at 34 times forward earnings, but with a proven business model, rising sales and profits and a growing pile of cash, I reckon this is one AIM share with a bright future.

More than meets the eye 

YouGov (LSE: YOU) is best known for its political polling, but behind the curtains there is much more interesting work going on at this rapidly growing AIM share. Custom research efforts are how the company made its name but it is now leveraging the reams of data it has on customers the world over into big sales with some of the largest multinationals out there.

Firms such as RBS are paying top dollar for access to YouGov's brand perception index and Omnibus service that allow them to carry out market research with a very specific set of consumers. Sales of these data services grew 32% year-on-year in 2016 to £34.5m. This is in contrast to relatively slower 9% year-on-year growth in the more well known custom research segment to £54.3m.

And aside from growing faster, the increased focus on data services is much more profitable than custom research. In 2016, operating margins for the former were 28% versus 13% for the latter.

The company is also cash rich with £15.6m in the bank at year-end, which is always good to see in a growing small-cap. YouGov's founder-led management team is taking it in the right direction and rising sales, profits and dividends make it a top pick for me, despite a lofty valuation of 25 times forward earnings.  

If this valuation is a bit rich for you but you're still after a fast growing small-cap, I recommend checking out the Motley Fool's Top Small-Cap. This company has increased earnings by double-digits four years running yet its shares trade at a very cheap eight times forward earnings.

To read why the Fool's analysts are so bullish on it, simply follow this link for your free, no obligation copy of the report.

Ian Pierce has no position in any shares mentioned. The Motley Fool UK has recommended Keywords Studios. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.