Buy Hold Sell: 5 quality small caps flying high

Backing a small cap that goes for a massive run can completely transform your performance. The challenge, of course, is finding them, but sometimes sheer momentum makes them stick out. So for this week’s episode of Buy Hold Sell, we review five small-cap stocks that have been flying high.

These stocks, with market caps of a billion dollars or less, have seen their prices gain nearly 50% on average this year. However, despite this huge performance, all but one stock is a unanimous buy in the eyes of this week's small-cap experts.

So watch (or read) as Ben Clark from TMS Capital is joined by Martin Hickson from Wilson Asset Management and David Keelan from Ellerston Capital to review these five small caps flying high. 

Ben Clark: Welcome to Buy, Hold, Sell. I'm Ben Clark, and today we've got David Keelan from Ellerston, and Martin Hickson from WAM, and we're going to be looking at small-caps, and particularly the small-caps of high-quality that are flying at the moment. There's not a lot of them, but we're going to go through a few. Firstly, I'll start with you, Martin. Nearmap, it's on a tear, nearly hit three bucks today. Buy, hold, or sell?

Nearmap (ASX:NEA)

Martin Hickson: For us, it's a sell. They've done a great job moving into the U.S. and expanding there, also growing their share in Australia. However, we think that the valuation more than reflects that. It's on a P/E of more than 60 times on FY21 numbers. So, very expensive. For us it's a sell.

Ben Clark: It's not cheap David, but have we got a different view on this one? Buy, hold or sell?

David Keelan: We're on a hold, and we agree management have done well, the story's been one that's been, it’s taken its time to get there but it has got there. But the multiple is priced in a lot.

Service Stream (ASX:SSM)

Ben Clark: Okay. Moving on to Service Stream, which has made a company changing acquisition, upgraded its result. Are you buy, hold or sell?

David Keelan: It's a buy for us. It's a strong balance sheet, with a strong management team that have delivered over time. It gives us good exposure to structural changes in infrastructure, like 5G and smart meters. And even at these prices here, we're happy to own and given the low level of cyclicality in their earnings.

Ben Clark: Okay. Martin I've noticed there've been some pretty lumpy director selling post the Feb result. You got a different view on this one?

Martin Hickson: There has been, but we agree, we think it's a buy. They've got strong tailwinds from the NBN roll out, the integration of Comdain, the recent acquisition is going very well. Despite the share price rally, it's still trading on an attractive valuation, 15 times, we think it's a buy.

Rhipe (ASX:RHP)

Ben Clark: Okay. Now Rhipe, that's had a pretty wild ride over the last couple of years, all-time high, got hammered back at an all-time high. Are you going to buy, hold or sell?

Martin Hickson: Again, we think it's a buy as well. They're exposed to the shift to cloud, despite the share price run, it still is trading on 24 times, earnings growing in excess of 30 percent. So, we like it, we think it's a buy.

Ben Clark: Yep. David, Microsoft seem to be trying to push everyone into the cloud and Rhipe’s benefiting. What's your view on Rhipe?

David Keelan: We're big believers of Rhipe, and we have been. Microsoft have 500 managed partners and Rhipe is probably number 12 in that whole list so, they've done a great job, they've got great support from Microsoft. We think it's a buy.

Ben Clark: Okay, and now I've asked you to bring along one that you think is high quality, it's running but you're still happy to buy it. What have you got for us?

Johns Lyng Group (ASX:JLG)

David Keelan: Johns Lyng’s a builder and service provider for the insurance market, we like them because they're solving a problem for insurers. Trying to bring down the cost of claims, and at the same time it has great operating leverage to big weather events like the recent hail storms, and the floods in Queensland.

Ben Clark: Okay. Martin, what have you got for us? One that WAM is still happy to buy at the current levels?

City Chic (ASX:CCX)

Martin Hickson: Yeah, we still like City Chic, we've liked it for the last 12 months. Again, attractive evaluation, solid first-half result, with like-for-like sales growth of around ten percent. Store roll-out programme, they're opening 30 new stores in Australia, and strong online business in the U.S. So, we still think it's a buy.

Ben Clark: Okay. Well it goes to show, stocks that are flying and are of high quality can still be worth looking at and buying, and not necessarily thinking about taking profits.