This 'hidden' growth stock looks a better buy than Interserve plc

Falling knife Interserve(LSE: IRV) continues to tempt and taunt investors in equal measure, with its share price now trading 78% lower than it did one year ago. There are reasons to be excited by its potential rebound prospects, and appalled by the mess it has got itself into. 

Artilium attack

Could this under-the-radar stock be a better option for risk seekers? You may never have heard of telecommunication software micro-cap Artilium(LSE: ARTA), which has a market cap of just £32.5m, but it was a big deal before the financial crisis. In October 2007 its stock traded at 348p, today, incredibly, you can buy it for 10p, up from 8p just three weeks ago.

This morning Artilium announced results for year ended 30 June which included revenue growth of 8.6%, from EUR9.6m to EUR10.5m, with adjusted EBITDA rising 21.7%, from EUR310,000 to EUR380,000. The group is a Mobile Virtual Network Enabler (MVNE) whose cloud platform provides customers with a fully branded mobile offering complete with sim cards and control panel. It also reported new business customer wins amid expansion of its portfolio of services.

Software, hard choices

Artilium recently opened its first office in Germany where it tells of strong demand for its fixed line mobile and data telecom based software. Non-executive chairman Jan Paul Menke hailed significant operational and technological progress: "We accelerated revenue growth, kept costs under control and strengthened our leading position in innovative telecom software solutions."

The group focuses on innovative cloud based telecom software used by data centres, telecom operators and corporates, and anticipates further revenue and EBITDA growth in the year ahead, with a growing order book. Its share price is little moved by today's report. I can understand why. This company has a long way to go and given the risks inherent in this sector, investors need something more jazzy to tempt them to take the plunge.

In which we serve

Interserve, by comparison, catches the eye, if only for its headline yield of 10.91%. Do not be misled, the forecast yield is 0%. Both figures reveal a company in severe difficulties, with yet another shock profit warning earlier this month adding to its woes. The international support services and construction company had previously issued two profit warnings this year, in February and September, and warned investors that it is in danger of breaching its banking covenants.

Interserve is a mess but blowhards will be tempted by its lowly valuation of just 1.18 times earnings. They will be further emboldened by news that it has just won a £140m contract to continue providing facilities services across the BBC's UK estate until 2023. The contract covers 150 sites including Media City UK in Salford, Broadcasting House in Portland Place, London, and Pacific Quay in Glasgow.

Debt fears

However, with a current market cap of £108m and anticipated average net debt for 2017 of between £475m and £500m, the numbers do not add up for me. Despite a promising £7.4bn order book, I fear further bad news could punish bargain seekers.

This exciting growth stock looks like a far steadier prospect. This mid-cap company has been turning on the style lately and one of the Motley Fool's top analysts reckons it is the latest British brand with the potential to go global.

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Harvey Jones 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 us better investors.

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