2 hidden small-cap stars I'd buy today

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Cambria Automobiles(LSE: CAMB) flies under the radar of most investors, but over the past six years, the company has proven that it should not be ignored. Indeed, since 2011 the firm has grown book value per share at a compound annual rate of 16.7% and net profit at a rate of 21.7%.

But despite this growth, investor concerns about the state of the motor trade sector have weighed on the firm, and as a result, the shares have underperformed. Specifically, over the past 12 months shares in Cambria have declined by 15% excluding dividends. 

Cheap valuation 

After these declines, the shares are trading at a highly attractive forward P/E of 6.7 and City analysts expect the firm to grow earnings per share by a steady 5% this year. According to a trading update from Cambria this morning, it looks as if it is on track to meet this target with management reporting "trading for the 11 months to 31 July 2017 is in line with expectations." Even though new vehicle sales declined during the period by 17.6% on a like-for-like basis, after-sales operations increased revenue by 8.4% and used vehicle sales fell only 1.7%. 

Against this backdrop, gross profit per retail unit improved, increasing overall profitability. Throughout the year, Cambria has also pushed ahead with the acquisition of new sites and the development of old sites in its portfolio, which should help drive organic revenue growth as overall new car sales slow. 

All in all, considering Cambria's valuation and steady growth, the company looks to be a hidden small-cap star to me. 

Rapid growth 

As Cambria has floundered, Gear4music(LSE: G4M) has charged ahead. Over the past 12 months, shares in the company have gained 372% as sales have exploded. 

According to an update from the group today, in the latest half year, revenues expanded 44% with UK revenues rising 30% to £17.9m and Europe sales rising 70% to £13.3m. According to Andrew Wass, chief executive, this growth has put sales figures ahead of expectations with the total of £31.2m equating to a two-year increase of 150%. This increase has come at a cost, however. Today's trading update warned that although sales were ahead of expectations, "increased costs and restricted short-term margins" are holding back profit growth. 

Still, as a long-term growth play, Gear4music remains attractive. Every company has to spend money to drum up interest in its products and services, it's just a natural part of doing business and margins will suffer. Nonetheless, in the long run, the spending should pay off in the form of higher sales and faster sales growth. 

Gear4music's growth is only just getting started, and even though the shares trade at a high earnings multiple of 79.5, I believe over the long term that the company will grow into this valuation. City analysts have pencilled in earnings per share growth of 31% for the fiscal year ending 28 February 2019 on revenues of £102m, up around 50% year-on-year. 

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Rupert Hargreaves owns shares in Cambria Automobiles. The Motley Fool UK owns shares of Cambria Automobiles. 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.