Many nano-cap, micro-cap, and small-cap stocks, primarily if they represent relatively unknown businesses that the general public is not familiar with, tend to fly under the radar. However, if you care to dig, you might find excellent picks among the smaller players in the market. A prime example would be ADF Group (TSX: DRX), which has recently risen 870% in just two years.
The company
ADF Group isn’t a new company. It has been around since 1956 and has European origins. Even now, its presence is mainly in Europe, primarily France. It offers smart industrial solutions to a wide range of industries, including but not limited to energy, materials, and transportation. It has a massive workforce — over 4,000 employees and a footprint spanning five continents.
The company has made several acquisitions and currently has five brands under its banner. This includes a brand that focuses on measurement and control engineering and another brand that helps businesses transform their manufacturing/production lines.
Is the stock worth buying?
Before determining whether ADF Group, despite its impressive growth record of 870% in two years, is worth buying now, we have to look into the factors that influenced its original growth.
At least one of the major factors influencing its growth was the financials. The company has grown its revenues and net income at a robust pace in the last few years. The revenues alone almost doubled between 2021 and 2024.
Strong financials are a significant fundamental strength and are also partly responsible for ensuring that despite its meteoric growth, the valuation remains reasonably fair, as reflected in its modest price-to-earnings ratio of 14.9.
The valuation might be perceived as an indication to consider the stock despite the fact that its bull market phase might be coming to an end if we grow by price alone. Since the beginning of 2024, the stock has risen by about 147%, but most of this growth took place in the first four to five months of the year.
Since then, the growth has been slowing down at a steady pace. It may reward its investors with decent returns until it fully exhausts its growth momentum, but that may be in a matter of months instead of years.
Foolish takeaway
If you are on the edge about whether or not to buy this stock, you should ask yourself what kind of growth you are expecting.
Even now, when the momentum is slowing down, the growth pace might be better than what most other, well-established growth stocks tend to offer, and that is reason enough to buy this stock. But if you are expecting the numbers for the next couple of years to be similar to the previous two years, you might be disappointed.
