To get a decent return on any investment, accepting a higher level of risk is needed. That doesn't mean pouring heaps of your hard-earned money into supercomputers which promise to be 'the next big thing', but merely recognising the relationship between risk and reward.
Many investors take a conservative approach and value safety above all else. Some are just too lazy to even think about it and invest in the same old companies, such as Commonwealth Bank of Australia (ASX: CBA). But a few of us are prepared to roll the dice and take our chances investing in up-and-coming growth stories.
If you're like me and willing to invest in small, profitable businesses then you should get to know these names:
Donaco International Ltd (ASX: DNA) is a hotel and casino owner/operator with its key asset in Lao Cai, Vietnam. It has a market capital of $538 million and a price-earnings ratio of 50 but will grow both revenues and earnings significantly in coming years, on the back of a huge renovation and acquisitive growth.
Collection House Limited (ASX: CLH) presents an appealing investment case for a number of reasons. Firstly, demand for credit is growing rapidly and this debt collector is in prime position to benefit. Two, it has a strong balance sheet enabling it to pay a juicy 4.3% dividend. Lastly, it's priced to please.
Slater & Gordon Limited (ASX: SGH) is law firm with nationwide exposure and expertise in personal injury services. After a slight setback in share price it's now even more enticing to potential investors. Its three-pronged growth strategy (including ongoing personal injury services growth, tapping the UK market and expansion into personal legal services) should result in increased revenues and earnings over the next five years.
Greencross Limited (ASX: GXL) is a veterinary services provider which is in a period of rapid growth. It's aggressively acquiring practices to consolidate the Australian market. It currently controls around 5% with a view for 20% market share in the future. Its share price has retreated recently, possibly because many investors may feel it got ahead of itself.
For the company to be ultimately successful its vital senior management conduct their due diligence and uphold stringent valuation criteria when assessing potential acquisitions to maximise shareholder value. Growth for growth's sake has proven to be extremely risky to shareholders' wealth in the long-run. Despite that however, it remains a worthy addition to growth portfolios.
Global Health Limited (ASX: GLH) is the smallest company on the list but that doesn't necessarily make it the riskiest. It's a developer of cloud-based software for medical professionals. Contracts with customers span years, not months, and its services are of a type such that its revenues and earnings could be sling shotted upwards if it benefits from a network effect in the medical community. As Motley Fool Contributor Regan Pearson points out, its share price is undemanding.
Foolish takeaway
Market volatility enables small "riskier" companies like these to be offered up at discounts to their recent highs. Now is the perfect time to take on a little extra risk and bag-a-bargain.
