3 Sturdy And Fast-Growing Small Caps That Might Interest You

It’s not uncommon to find newcomers to the stock market preferring to stick with large, established companies as those are likely to inspire the most confidence about their future prospects.

But, did you know that only 114 Singapore-listed companies have a market capitalisation of more than S$1 billion? That is roughly 15% of the total number of companies listed in Singapore’s stock market.

If we drill deeper, most of the companies in Singapore’s stock market – 76% to be exact – have a market capitalisation of less than S$500 million. Their sheer numbers suggest that companies with small market capitalisations should not be totally disregarded by investors.

To help you get started, here are three fast-growing small caps with strong balance sheets that might interest you.

Hickory Dickory Dock

Although The Hour Glass Ltd (SGX: AGS) has a relatively small market cap of around S$470 million, it is actually a well-established company in the region, famous for its core business of luxury watch retail.

The company’s also well-known for the provision of quality customer service and that could be a strong reason behind its strong revenue and profit growth over the past five years.

Financial metric Compounded annual growth rate (CAGR) over past five years
Revenue 9.5%
Net income 40.1%

Source: S&P Capital IQ

Based on The Hour Glass’s latest financials for the quarter ended 30 September 2014, the firm had S$89 million in cash on its balance sheet and just S$42 million in borrowings; that net-cash position is a sign of strength in the company’s balance sheet.

It would be interesting to watch how the company would perform over the next decade. You can learn more about Hour Glass here.

The piping of the internet

The next company might not be well known to the general public, but LanTroVision (S) Ltd (SGX: Q7W) has been providing network integration and structural cabling services for more than a decade now.

Currently, LanTroVision – with a tiny market cap of S$150 million – is riding on the coattails of higher demand for data centres around the region. As you can see in the table below, the company has enjoyed very strong double-digit growth for both its top- and bottom-lines over the past five years.

Financial metric CAGR over past five years
Revenue 13.5%
Net income 28.5%

Source: S&P Capital IQ

The company’s balance sheet is also rock-solid: As of 30 September 2014, the firm had S$80 million in cash and fixed deposits, and only S$127,000 in borrowings.

With a strong balance sheet and potential for strong demand for its products and services in the future, investors might want to keep an eye on this small company.

More to it than just a rubber glove

Last on the list is medical and cleanroom glove manufacturer Riverstone Holdings Limited (SGX: AP4), which has a market capitalisation of S$389 million.

With the growing demand for more consumer electronics devices and medical services, the customer base for both medical and cleanroom gloves would also rise. This can provide a strong tailwind for Riverstone Holdings.

It’s tough to say what can happen in the future, but it’s safe to say that Riverstone Holdings has been taking advantage of any opportunities that has come its way in the past given its outstanding double-digit revenue and profit growth over the past five years.

Financial metric CAGR over past five years
Revenue 21.9%
Net income 21.6%

Source: S&P Capital IQ

Riverstone has also been constantly increasing its glove production capacity (from 601 million gloves in 2005 to a projected 4.2 billion gloves by the end of 2014) as it sees even more growth for its industry in the future and wants to ride on that wave.

The company’s balance sheet is the best of the bunch here given that its latest financials (for the quarter ended 30 September 2014) shows that it has no borrowings and RM49 million in cash. You can learn more about the company here.

Foolish Summary

None of all the above is meant to say that Hour Glass, LanTroVision, or Riverstone will certainly be good investments going forward. A much deeper look is still required (for instance, a study of the trio’s valuations would need to be done too) before any investing decision can be made.

But in any case, not all smaller-sized companies are risky investmennts. In fact, the small-caps space can also be home to promising and well-managed companies. Investors would benefit greatly by learning more about companies within this segment.

For more investing analyses and important updates about the stock market, sign up to The Motley Fool Singapore's free weekly investing newsletter, Take Stock Singapore. Written by David Kuo, it can help you grow your wealth in the years ahead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.