2016 has been a difficult year for investors. While the portfolios of manymay be worth significantly more than they were in January (when the FTSE 100 was below 6,000), the journey taken to get there hasbeen rather testing. Indeed, if theres one thing weve all learned after two seismic political events, its to expect the unexpected.
Soits unsurprising if some small-caps have fared worse than their traditionally-less-risky blue chip counterparts. Among those companies that have seen their share prices dip over the last yearhave beenhealthcare software and services supplierEMIS (LSE: EMIS) and photobooth operator,Photo-Me International (LSE: PHTM). Could these stocks get back on trackin 2017? I think so and heres why.
In need of resuscitation?
EMIS doesnt generate many column inches, yet it plays a significantrole in our lives. The541m cap is often the firstchoice of GPs, hospitals and pharmaciesup and down the UKfor digitising patient records and providing IT solutions. The fact that EMIS already has asignificantshare of this market makes it highly attractive as an investment. After all, its simply too much hassle to switch IT systems regularly, especially if youre dealing with something as important as healthcare.
So why the drop from the all-time high of 1,155p back in January to todays more subdued 860p? Although the aforementioned flight from morerisky shares cant be overlooked, cuts inNHS spendingand a reduction in the number of acquisitions have clearly hurtsentiment towards the stock. Will this fall continue? Given the benefits that come from implementingthe companys software (reduced operating costs,improvedpatient services), Id be very surprised.
On a forecast price-to-earnings ratio (P/E) of 16 for 2017, shares in EMIS arent screamingly cheap when compared to other stocks on the market. They are, however, considerably less expensivethan theyve been in the past, leading me to also consider the companys potentialas abid target.
Picture perfect?
Bookham-based Photo-Me International is another small-cap whose share price has been heading in the wrong direction of late.Since reaching a 16-year high of 178p back in March, shares in the 538m cap havedropped back to 140p. I suspect this may be short-lived, particularly as the company stands to benefit substantially from the continued implementationof the My Number identity card scheme in Japan. The potential need for 3D images in the future could also act as a catalyst for growth.
Thereare other thingsto like about Photo-Me. The companycan boast excellent levels of return on capital in recent years along with risingoperating margins. Itsnet cash position is also a major positive. But perhaps the biggest draw is the generous yield on offer. As things stand, Photo-Meis expected to pay out just over 7p per share to investors in 2017, equating to a yield of 4.91%. Thats an awful lot more than youd get from a typical savings account.
The only thing that concerns me here is the dwindling dividend cover. Next year, its expected to drop to 1.17. This shouldnt be a problem if Photo-Mes earnings recover over time, of course, but its certainly something for income investors to ponder before snapping up the shares.
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Paul Summers has no position in any shares mentioned. The Motley Fool UK has recommended Emis Group. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
