One small-cap growth stock I'd buy ahead of IQE plc

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IQE Photonics

There's no denying that IQE(LSE: IQE) has been one of the great success stories over the past couple of years, with the semiconductor wafer specialist enjoying a sevenfold increase in its share price since July of last year. But have the shares climbed too high, too quickly?

One stop shop

For those of you who are unfamiliar with the group's activities, the Cardiff-based firm happens to be the leading global supplier of advanced semiconductor wafers. The company's products cover a diverse range of applications, supported by an innovative outsourced foundry services portfolio that allows the business to provide a 'one stop shop' for the wafer needs of the world's leading semiconductor manufacturers.

The AIM-listed firm uses advanced crystal growth technology, known as epitaxy, to manufacture and supply bespoke semiconductor wafers (epiwafers) to the major chip manufacturing companies, who then use these wafers to make the chips which form the key components of virtually all high technology systems. But what I love the most is the fact that that the Welsh firm is unique in being able to supply wafers using all of the leading crystal growth technology platforms.

Huge potential

IQE's products can be found in many leading-edge consumer, communication, computing and industrial applications, including a complete range of wafer products for the wireless industry, such as mobile handsets and wireless infrastructure, Wi-Fi, base stations, GPS, and satellite communications and optical communications.

There's no denying the huge potential for IQE. A broad range of customer engagements across multiple technologies and end markets should provide a clear path to increase revenue diversity and accelerate growth over the coming months and years. But this promise of spectacular growth has powered the shares 300% higher over the past 12 months, and at 38 times forecast earnings that potential now looks to be well and truly priced-in.

Something to think about

For those in the market for an AIM-listed growth stock with a more down to earth valuation, then today's interim results from Walker Greenbank(LSE: WGB) should certainly give investors something to think about.

The luxury interior furnishings group this morning reported a big leap in first half revenue helped along by last year's acquisition of Clarke & Clarke. The Uxbridge-based group designs, manufactures and markets wallpapers and fabrics, together with a wide range of ancillary interior products.

Step change

For the six-month period to 31 July, sales were up 29.9% to £54.3m, including a £10.3m contribution from Clarke & Clarke, the fabrics and wallpaper business acquired in October 2016. Adjusted operating profit before tax was up by a massive 55.3% to £5.9m, compared with £3.8m for the first half of 2016/17.

The acquisition of Clarke & Clarke clearly shows a step change in Walker Greenbank's performance during the first half, and I'm bullish on the longer-term prospects. Trading on a forward price-to-earnings ratio of 15, this is one small-cap growth stock I'd certainly consider ahead of IQE at this moment in time.

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Bilaal Mohamed has no position in any 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.