I’d buy these 2 micro-caps before they soar in 2020 – Motley Fool UK

Posted: February 13, 2020 at 11:45 am

Spotting the next opportunity before it breaks out has become less of a hobby and more of a total obsession as Ive become a more experienced investor. Theres always money to be made in growth sectors I just wish I had more capital on hand to take advantage of the good companies I research!

Caveat emptor, of course. With fewer daily trades in AIM-listed companies than on the FTSE 100 or FTSE 250, it can be more difficult to sell up if you want out in a hurry.

But having picked apart their finances I think these smaller UK-listed companies will be among the best performers of 2020.

53m market cap Shearwater Group (LSE:SWG) is an AIM-listed cybersecurity, infosec, and IT risk management business with 400 customers across FTSE 350 firms, government departments, and US Fortune 500 companies.

One of the few British independent businesses in the cybersecurity field, Shearwater has been plugging away nicely in recent years, buying up profitable companies to add to their group and cross-selling products between them to generate better revenue, which I like.

The board, now led by CEO Phil Higgins, has focused on a buy, focus, grow strategy, adding penetration and threat testing firm Pentest to its stable in April 2019 for 7.4m.

Behind the scenes there is a lot of product development going on, such as a scanning-as-a-service product that uses machine learning to audit sensitive data on external drives, in cloud applications like Office 365, and in cloud storage, such as Google Drive.

The second half of 2019 represented the maiden profit period for SWG, with revenue swinging up 11% to 16.3m, earnings of 1m and adjusted earnings per share of 2.23p.

News has gone a little quiet in recent weeks, so Id expect the next major update to send the share price soaring.

Manchester genetic testing firm YourGene Health (LSE:YGEN) develops non-invasive products for male fertility, and pre-natal screening for cystic fibrosis and other genetic disorders.

What caught my eye about the 88.2m market cap business is their planned expansion to extend genetic testing into cancer detection and prevention. Acquiring Elucigene in April 2019 means the company has been able to expand into the US market and launch its first oncology product.

Like Shearwater, YGEN has just posted its first positive earnings. Revenue is growing strongly, up from 0.1m to 8.8m over the last five years, and directors in the company continue to buy more stock to raise their personal stakes, which bodes well.

CEO Lyn Rees highlighted the firms strong prospects in recent half year results to 30 September 2019. Revenue was up 97% with excellent organic growth of 56%, gross profits 141% higher, and net cash significantly improved to 3.6m compared to net debt of 12.8m over the previous half.

I usually seek positive language in regulatory updates, backed by strong financial fundamentals, and YGEN has this in spades. I remain convinced we have a very significant opportunity ahead of us, Rees noted, adding, we are confident in our outlook for the year ahead and very excited about the prospects for further growth over the following years.

Savvy investors like you wont want to miss out on this timely opportunity

Heres your chance to discover exactly what has got our MotleyFoolUK analyst all fired up about this pure-play online business.

Not only does this company enjoy a dominant market-leading position

But its capital-light, highly scalable business model has been helping it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns in fact, in 2019 alone it returned a whopping 151.1m to shareholders in dividends and buybacks!

And heres the really exciting part

We think now could be the perfect time for you to start building your own stake in this exceptional businessespecially given the two potentially lucrative expansion opportunities on the horizon that our analyst has highlighted.

Click here to claim your copy of this special report now and well tell you the name of this TopGrowth Stock free of charge!

Tom Rodgers has no current position in 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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I'd buy these 2 micro-caps before they soar in 2020 - Motley Fool UK

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