Aslong as you can tolerate higher capital risk and increased share pricevolatility, investing incompanies outside the FTSE 350 can lead to substantial profits over the long term. Not only arethese businesses oftenable to respond to changes in demand quicker, its also easier for themdouble theirprofits or more over a shorter periodcompared to those higher upin the market hierarchy. With this in mind, lets take a look at two such companies that issued results today.
Game on
Following its unsuccessful joint bid with Rank to acquireWilliam Hill, its not really surprisingiftodays half-year report from online gaming company 888 (LSE: 888) attracts more attention than usual.Positively for investors, theresults contain some excellent numbers. Revenue at 888Casino roseby 31% with active players in Q2 up 35% year-on-year. Even more impressively, revenue at 888Sport rocketed by 63% to $25m thanks to Euro 2016, increased marketing and successful launchesin Italy and Denmark.
CEO Itai Frieberger is also optimistic on H2 performance:Trading in Q3 has started well with average daily revenue until 27 August 2016 15% above strong previous year comparatives and 22% higher on a like-for-like basis.With this strong momentum the Board remains confident of delivering against expectations for the full year.
Given this confidenttone, its unsurprising that shares in 888were up 3.5% to 222.5p in early trading. With a reasonable forecast price-to-earnings ratio (P/E) of 17, the companylooks fairlyvaluedcompared to manyin the gaming/betting field.A forecastdividend yield of over 4% is the cherryon the cake.
Strong interims
Like 888, health and fitness facilities providerGym (LSE: GYM) reported some decentfigures today. Revenue jumped by just over 25% to 36.1m. The adjusted profit before tax figure of 4.6m is in sharp contrast to the0.8m loss reported for the first half of 2015. Strong cash generation has also allowed the company to reduce its net debt to 2.5m, down from 7.1m last December.
As far as operational progress is concerned, the company opened six news gyms in the first half (bringing the total estate to 80) and appears on track to meet itsannual target of 15-20 openings. There was a 19.4% increase in membership and 2.1m more visits to its sites compared to this time last year.
With these numbers, its understandable that CEO John Treharnes comments wereupbeat:We are confident that our low-cost, disruptive positioning in the market place, our well-developed rollout plans and our strong financial position bode wellfor further rapid and measured profitable development and progress, whatever the economic environment.
In the aftermath of the EU referendum, investors are likely to be comforted by the end of that sentence. Its flexible approach to memberships and affordablesubscription charges should mean its able to withstandany Brexit-related wobbles. Nevertheless, given the intensely competitive industry it operates in, I still need to be convinced that Gym is able to distance itself from rivals, particularly as its budget offering should be relatively easy to copy and perhaps improve on.
At the time of writing, Gyms shares are down just over 3%, followinga substantial 13% rise on Tuesday. Despite this drop, thehigh valuation (P/E of 45) suggests that prospective investors may be better off waiting for a more attractive entry point.
Small can bebeautiful
With teams of analystsporing over every fact and figure released by companies in the FTSE 350, the chances of a share being mis-priced are pretty slim. This isn’t always the case with small-cap shares. Their size means that institutional investors eitherneglecttoresearch them or can’t buy them without deviating from the aims of the funds they manage, thereby allowing opportunistic investors the chance to grab slices of great businessesbefore the herd arrives.
If small-caps grab your attention (and you’ve already contemplated your financial goals, investing horizon, attitude to risk and desired return), I strongly suggest you take a look at a special FREE report prepared by the experts at the Motley Fool. It highlights what they believe is a rising star inanunder-appreciatedindustry.
Click here for your copy.
Paul Summers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
