2 small-caps that could be millionaire makers
Concrete is not a very exciting industry, and designing and selling the equipment to ensure it's level when poured even less so. But that doesn't matter to shareholders of Somero Enterprises (LSE: SOM), who have had excitement enough in seeing the shares rocket from 60p this time in 2013 to 397.5p today.
Judging by today's trading update from the Florida-based firm, the current market cap of £220m could grow still grow quite a lot as its CEO reported strong overall sales growth and was bullish in saying there were "significant opportunities that lie ahead."
This isn't surprising given that the products have a loyal customer base among construction firms needing to ensure multi-story warehouse floors are perfectly level to allow end-use customers ranging from IKEA to Mercedes-Benz and FedEx to store millions of dollars of goods safely, efficiently and to increase automation opportunities.
From 2014 to 2017 annual revenue rose from $59.3m to $85.6m with adjusted EBITDA up from $15m to $28m over the same period. Looking ahead, I reckon there are plenty more growth opportunities as the firm's sales in its two largest markets, the US and Europe, continue to steadily rise. And with sales in these markets contributing to just $70m in revenue last year there is still clearly lots of potential in the multi-billion-dollar construction markets on both sides of the Atlantic.
And while Somero's operations in the massive Chinese market are taking time to take off, there is certainly great potential here in the long term, as well as from its constant development of new machines that has helped it into markets such as that for working on high rise buildings. With a valuation of just 16 times trailing earnings while kicking off a 3.47% dividend yield, Somero is not exactly priced like the high-growth company it is, although this isn't a shock given its reliance on the cyclical construction industry.
Considering its growth prospects in developed and developing countries, alongside its conservative net cash position, hefty dividend and undemanding valuation, I reckon the stock could continue to generate huge returns for investors if the global economy continues to kick on.
And a more aspirational option
One company trying to generate returns as spectacular as Somero's is fast fashion retailer Quiz (LSE: QUIZ). So far, it is doing fairly well in its quest to replicate success stories like Boohoo, as revenue for the year to March jumped 30% to £116.4m, driven by online sales growth of over 150% to £30.6m.
Alongside triple-digit digital sales growth, the company's plan to roll out further stores in the UK and gin up international online revenue is working well. That said, unlike newer fast fashion retailers, it will still need to work hard to refashion itself as a must-visit online option rather than the budget shopping centre stalwart it has been since its founding in 1993.
But with operations solidly profitable, and cash on hand to fund a big marketing budget and infrastructure investments, I wouldn't count the company out. Fast fashion retailers, and Quiz in particular with its rich valuation, may not be my cup of tea given their unproven longevity and the fickle nature of young shoppers, but investors looking for the next Boohoo may find it worth digging into Quiz as I'm sure the sector has already minted a fair few millionaire investors.
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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo group, FedEx, and Somero Enterprises, Inc. 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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