I'm always busy looking for exciting growth stocks outside the S&P/ASX200 Index (INDEXASX: XJO) (ASX: XJO). I search for companies with strong brand recognition, quality management (who own shares in the company), great products and, most importantly, a cheap share price.
Whilst I'll be the first to admit I won't get it right every time, I think the following three small-cap stocks present compelling buying opportunities for long-term investors at their current price.
1. Financials: Yellow Brick Road Holdings Ltd (ASX: YBR) is a diversified wealth management company which is led by former Wizard Home Loans founder, Mark Bouris. YBR provides its own products – backed by Macquarie Group Ltd (ASX: MQG) – but also on sells products from other lenders. Although not yet profitable, its long-term outlook is growing increasingly positive. In the past six months shares are up 38%.
2. Retail: Cash Converters International Ltd (ASX: CCV) is a name familiar to many Australians. Although known for being Australia's premier second-hand goods dealer, Cashies has a growing payday loans business, expanding international footprint and has made strategic investments in other businesses, such as all-in-one car finance provider Carboodle. At only $1.10 per share, it trades on 13 times earnings and a dividend yield of 3.7% fully franked.
3. Legal: Shine Corporate Ltd (ASX: SHJ) is a recently listed law firm which has significant insider ownership. Shine has a proud history in Queensland's personal injury market (which makes up 47% of revenues) and is busily expanding its offering outside both its home state and most lucrative service. Shine is expecting to report FY14 EBITDA between $34 million and $37 million, a jump of 20% on last year. Despite recently acquiring two law firms I expect, with a healthy cash balance, its acquisitive growth story is just beginning. It trades on a dividend yield of 1.3% and earnings ratio of 18.
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I expect each of these companies to grow earnings modestly into the foreseeable future thanks to their competent management and strong balance sheets. At current prices, Cash Converters is my pick of the bunch.
