2 small-cap stocks that look set to soar

Growth shares come in many guises, but a focus on the next five years can be critical to longer-term success.

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Gambling success

What do you think when you see a share that has five-bagged over the past five years? I'm usually torn between thinking it might have a lot further to go and wondering whether I'm too late.

Quixant(LSE: QXT) shares are up by around that amount, to 380p, including a 4% rise on the day 2016 results were delivered. The firm describes itself as "a leading provider of specialised computing platforms and monitors for gaming and slot machine applications," and that's clearly big business right now.

Its gaming division enjoyed a 45% rise in revenue to $53m during the year, with adjusted pre-tax profit up 23% to $11.1m.

But Quixant also has its finger in another pie after the acquisition of Densitron in November 2015, and that division also reported good things with revenue at $37.4m and adjusted pre-tax profit at $2.7m in its first full year.

Adjusted EPS gained 47% to 16.6 cents, and the dividend was lifted by a third to 2p per share. Yields are under 1% at the moment, but the company has a progressive dividend policy and cover by earnings is very strong.

The shares are on a forward P/E of nearly 27, which might look a bit high -- and with EPS growth expected to drop to 25%.

I also find myself wondering about the gaming technology business -- are we looking at a first mover in the latest growth stock fad and does disappointment lie ahead? Or are we really in for years of steady growth and does Quixant have sufficient competitive advantage to stay ahead of potential rivals?

But saying that, I do like Quixant's support from its Densitron division as backup, and I'm cautiously optimistic about the next five years.

Tempting growth

Shares in Cello Group(LSE: CLL) haven't had quite the same rocket ride, but a 176% hike in five years isn't too shabby -- and on top of that, we've seen dividend yields of around 3% per year over the past few years.

The pharmaceutical and consumer strategic marketing group has reported a 5.4% rise in revenue for the year to December 2016. Like-for-like gross profit was up 5.9%, though headline pre-tax profit and earnings per share were flat and net debt rose slightly to £5.1m.

But the firm was confident enough to hike its dividend by 18.9% to 3.4p, as chief executive Mark Scott said Cello is "now in a strong position to accelerate its global growth, with a particular focus on the US market." He spoke of the company's "Pulsar social media product continuing to grow strongly, as well as increasingly supporting the digital communications capability of Cello Health."

Analysts have another flat year pencilled-in for 2017, but they see EPS starting to grow again by 2018. I see the firm's two main directions -- pharmaceutical sector services and web-based marketing services -- as having great long-term potential, especially if the US market really can be cracked.

We're looking at a 2018 P/E ratio of 13, which I think looks cheap if the acceleration of growth that Mr Scott suggests does come about -- and I'm not seeing any reason to doubt his optimism right now. In another five years we could be looking back at 2017 as a great time to have bought Cello shares.

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