With a good selection process and a bit of luck, I think small and mid-cap growth stocks have the potential to increase my wealth at a faster pace than a typical FTSE 100 juggernaut. Here are two examples from the UK market that have been doing just that for current holders. Here are two I’d buy today.
Inspecs
Since covering the company in September, eyewear frames designer, manufacturer and distributor Inspecs (LSE: SPEC) has performed well. Its share price has climbed 45%. Over the last year, it’s up 59%.
That may seem strange considering today’s full-year numbers. Revenue fell 22.5% to $47.4m in 2020. A pre-tax loss of $8.9m was also revealed.
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Of course, the usual suspect — Covid-19 — was to blame. Early on in the pandemic, Inspecs’s production site in China was impacted. Lockdowns globally then forced clients to shut stores and distribution depots closed. This was never going to be an easy ride for the £350m cap.
On a more positive note, Inspecs revealed today that trading had significantly improved in the second half of last year. This, coupled with the emergence of effective vaccines, goes some way to explaining why the share price has remained resilient.
Whether the valuation continues increasing over the rest of 2021 is hard to say. Like most businesses, Inspecs’ near-term outlook will depend on whether we really are coming to the end of the pandemic. Although trading has recovered, it would be brave (or foolish) to assume no risk remains.
Even so, I remain bullish from a longer-term perspective. As part of its growth strategy, 2020 saw Inspecs acquiring other businesses, increasing its manufacturing capacity and adding more brands to its portfolio. A new facility in Vietnam is now up and running and the AIM-listed company’s order books are “higher than at the same time in 2020 on a like for like basis”.
Taking all this into account, I’d still be happy to buy this growth stock at its current price.
CVS Group
Since I wrote about it at the same time, it makes sense to return to look at how shares in veterinary services firm CVS Group (LSE: CVSG) have performed too.
Thanks to the huge growth in pet ownership seen over the multiple UK lockdowns, it’s no surprise to see that the shares have pretty much doubled in value. In the last year, the price is up 131%!
Encouragingly, the company reported in April that the trading momentum seen earlier in 2021 had continued. Sales remained “strong“, helped by the Royal College of Veterinary Surgeons’ decision to permit non-essential services.
As a result, CVS now expects revenue for FY21 to be better than previous expectations. Adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) will also be “comfortably ahead“. This is exactly what investors want to hear from companies they own.
So, is it time to take profit? I’m not so sure. Since spending on pets is non-discretionary (owners consider them members of the family), I actually think there’s more upside ahead. This is exactly why top UK fund managers such as Terry Smith love this part of the market.
CVS Group has had a great run, reflected in its rich valuation of 31 times forecast earnings. However, I’d be far more comfortable buying a slice of this company today over a similarly priced but cyclical growth stock.
