2 small-cap under-the-radar growth stocks with brilliant potential

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Growth

With a market value of just £111m, Crossrider(LSE: CROS) flies under the radar of most investors, but you shouldn't ignore the potential of this hidden small-cap. 

It distributes and develops digital products in the online security space, a hot and fast-growing market. Management is driving growth through both organic expansion and acquisitions funded by the company's strong cash generation. 

For the first half of 2017, its core App Distribution division performed strongly with preliminary figures showing revenues of $20.6m, up 13.1% year-on-year. According to management, this growth reflects the "successful expansion of Crossrider's B2C cyber security software business." To complement this organic growth, earlier this year the group announced that acquisition of CyberGhost, a leading SaaS Virtual Private Network provider. 

Cash rich 

Crossrider has a solid balance sheet to pursue further acquisitions. At the end of June, cash was $67.9m, or around £52m, 47% of the firm's current market value. 

City analysts are expecting it to report its maiden profit this year. A pre-tax income of £5.9m is pencilled in giving projected earnings per share of 2.9p. Based on these forecasts, shares in the company are trading at a forward P/E of 23.6. 

This growth multiple might seem expensive, but analysts have pencilled in further earnings growth of 71% for 2018, giving a PEG ratio of 0.2 implying that shares in Crossrider are appropriately valued compared to the company's future growth. 

Even though it has a mixed past, management's efforts to refocus the business seem to be paying off. Profits are growing, the company has a strong cash balance to fund its expansion (as well as bolt-on acquisition), and there's plenty of room in the digital market for the firm to expand. All in all, this is one small-cap that's worth adding to your watchlist.

Small-cap with big potential 

IG Design(LSE: IGR), formerly International Greetings plc is another small-cap with big potential. It flies under the radar of most investors because it's a relatively boring business that sells gift packaging and greetings cards, amongst other items, in over 150,000 stores around the world. This business, while boring compared to high growth tech firms, is lucrative. Pre-tax profits have jumped 220% since 2014.  For the year ending 31 March 2017, earnings per share rose 25%. 

Going forward, City analysts expect IG's rapid growth to continue. Analysts have pencilled in earnings per share growth of 11% for the financial year ending 31 March 2018, followed by growth of 11% for 2019. According to the first quarter trading update, the group is firmly on track to hit these targets having made a strong start to the year. 

Unfortunately, thanks to the company's historical growth rate, shares in IG are not cheap. The shares currently trade at a forward earnings multiple of 18.9. Still, considering the group's past performance, I believe that this is a price worth paying. 

The company is highly cash generative and was able to reduce net debt from £17.5m last year, to a net cash position of £3m at the end of fiscal 2017. Based on these figures, I wouldn't be surprised if management decides to start returning more cash to investors via special dividends going forward. The shares currently yield 1.4%. 

Overall, based on IG's steady growth, cash rich balance sheet and dividend potential, I believe that the company has brilliant potential. 

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Rupert Hargreaves 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