Why there's never been a better time to buy small cap shares

by , 18 July 2017
Why there's never been a better time to buy small cap shares
Over the past three years the JSE has gone nowhere!

On 4 July, 2014 the JSE All-Share Index stood at 52,060 points.

By the end of 3 July 2016 the same index stood at 52,164.

And yet it's PE is near an all time high of 19.94.

This makes the index ridiculously ‘expensive' and the average investor extremely despondent, crying where's the value.

But I'm hear to tell you, there's no need to be negative.

In fact, I see today as a perfect buying opportunity. It's markets like this that make small caps explosive - and I mean that in a good way.

I'm talking double and triple digit profits can be scooped up by enterprising investors.

Let me explain…

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In a zero-growth market I always look for growing companies
 
Whilst the massive Top 40 companies on the JSE are mature and merely increasing sales by inflation, there are smaller companies that are growing rapidly.
 
These companies are growing their market shares, often doubling their market share from 1% to 2%, or 2% to 4% of a given market.
 
And because they’re so small, even a small increase in market share can lead to a big increase in revenue.
 
It’s from shares like these that my Red Hot Penny Shares readers have benefitted from over the years:
 
The explosive potential of penny shares compared to the JSE average
 

This chart shows the average growth you’d have seen on R10,000 if you’d invested in every Red Hot Penny Shares tip since 2010, compared to the JSE All-Share Index.
 
As you can see, these smaller shares outperformed the JSE almost three-fold over this time period. 
 
  
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Why today is a golden buying opportunity
 
Here are just a handful of small caps showing amazing growth and you’ll see why I’m excited:
  • Argent Industrial grew earnings per share 10.8% to 69.6cps in its latest results released on 29 June 2017. The company will pay investors a 19cps dividend and sits on a PE of only 7.1 – a 64% discount to the JSE All-Share Index average PE…
     
  • Ansys Ltd grew earnings per share 202.88% between 2016 and 2017. The company now sits on a PE of only 8.9 and expects 2017 to 2018 to show growth yet again.
     
  • Wescoal increased tons mined by 82% from 1.85 million tons in 2016 to 3.371 million tons in 2017.Revenue grew from R1,5 billion to R2.12 billion with operational EBITDA soaring from R152 million to R294 million.
     
  • Headline earnings per share, before once of costs, jumped by 96.9% to 53.4cps from 27.1cps in the previous year.
     
  • CSG Holdings released results on 31 May 2017. The company grew revenue by 37% to R1.7 billion from R1.3 billion. It increased operating profits by 20% and earnings per share are 19.37cps. The company sits on a low PE of 6.44, and pays a dividend of around 3.2%.
Now just imagine if the share just moved to a more realistic, but still modest PE of 13, its share price would DOUBLE.
 
 
They’re trading at some of the biggest discounts to their real value in years, whilst still growing profits. Just take a look at Rolfes, Santova and Insimbi to see what I mean.
 
Here’s to unleashing real value
Francois Joubert
 
P.S. Whatever you do don’t ignore the potential on offer. If you are afraid to do it on your own, then join the ride with me. I just released my hottest 5 small cap stocks I believe will rocket within the next 12 months and for a limited time, you can get access to them absolutely free for 90 days, you can get the full details here.  

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