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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

Are these the best small cap stocks to watch in February 2024?

What are the best small cap shares to watch in February 2024? These have been selected for recent market news

Are these the best small cap stocks to watch in February 2024? Source: Bloomberg

Small cap stocks are companies that trade on the FTSE Small Caps index. They tend to have a market value or capitalisation in the hundreds of millions. For example, Kier Group, mentioned below, has a market value of £570 million, while Wickes has a market capitalisation of £393 million.

Smaller stocks could have greater growth potential than those of older more mature companies quoted on the FTSE 100 and FTSE 250. However, this can also mean that their stock market performance can be more unpredictable.

Here are some of the small cap shares we think may be worth watching. They have been selected for recent market news.

Always do your own research. Past performance is not a guide to future performance.

Best small cap shares to watch

1. Halfords

2. Ricardo

3. Kier

4. Wickes

5. On the Beach

Halfords (LON:HFD)

Shares in Halfords are down 11% this year to 174.8p. The retailer, which sells motoring services and bike and car accessories from its chain of stores around the UK, has had a rough time of it of late. The company, which previously benefited from the boom in cycling, cut its profits forecast at the half-year results in November.

Sales of Halfords’ cycling products have been hit by the cost of living crisis and customers have less cash in their pockets for discretionary spending. The company now expects profits in the range of £48 million to £53 million rather than up to £58 million.

However, much of this negative news could be in the price now and the shares trade on an undemanding price earnings ratio of 15. What’s more, its motor servicing business continues to trade well and Halfords is investing in its garage operation. Indeed, motoring retail sales rose by 7.9%, while sales at its autocentre jumped by 34%.

Ricardo (LON:RCDO)

Ricardo makes engines for Formula One McLaren cars and also has an environmental business. The shares are down 19% over the past 12 months to 435p. The company has been hit by a downturn in its automotive powertrain division and had to absorb £25.1 million of restructuring costs at the full year results in November 2023. As such, Ricardo made a pre-tax loss of £8 million for the full year.

Nevertheless, at the same time, the company also posted record order intake, up 23% to £522 million, generating a record year end order book of £395 million. Sales from its continuing operations increased by 17%, while underlying operating profits rose by £6 million, boosted by its environmental division. The company says it is on track to double underlying operating profits in the five years between 2022 and 2027. Analysts at broker Peel Hunt think the shares could reach 532p.

Source: Bloomberg

Kier Group (LON:KIE)

Contractor Kier Group has a construction business and also provides rail services. It was involved in the HS2 project and is likely to benefit from the Government’s need to fix problem concrete plaguing many schools and public buildings around the UK. The company posted an upbeat trading statement in January, with the order book up 6% to £10.7 billion compared to the year-end position of £10.1 billion. Meanwhile, Kier has 92% of its revenue for the full year 2024 already in the bag – this excludes more long-term framework deals.

Its Natural Resources business recently picked up a £30 million contract with Evolve in Northern Ireland, while it has also landed education projects worth £150 million, a £60 million healthcare project and a deal to build a new housing block at HMP Elmley worth more than £100 million.

The shares have had a great run this year, rising 79% to 127.8p and are close to their three-year highs, but still way off their five-year highs so could be worth watching, especially given Kier is set to reinstate the dividend this year.

Wickes (LON:WIX)

Half-year profits at the home improvement retailer slumped by 40% last year partly due to higher cost inflation. However, Wickes' recent trading update in January showed resilience, with like-for-like sales at similar levels to last year and double-digit growth in its TradePro division. Sales of its kitchen and bathroom installation services dipped during the period, nevertheless.

However, adjusted pre-tax profits for the full year 2023 are now expected to be at the upper end of expectations £44.9 million to £48.3 million. With the housing market sluggish, home owners are more likely to stay put and improve their existing homes, which is likely to benefit the DIY retailer in the longer term.

Meanwhile, the shares, at 157p, are still some way off their three-year highs of 266p seen in May 2021. They trade on a reasonable price earnings ratio of 19 and offer a nearly 7% dividend yield.

On the Beach (LON:OTB)

Holiday provider On the Beach continues to benefit from the uptick in customers booking holidays, despite the cost of living crisis. Winter bookings remain strong with the company beginning the New Year with a record forward order book, according to its recent AGM trading statement in January. According to the company, the total transaction value (TTV) of holidays sold is 27% up on the same period in 2023.

Business to consumer long haul TTV is up 86% compared with the same period last year. Meanwhile, chief executive Shaun Morton says that TTV for winter 2023 is 34% ahead of the previous year and that he is “confident” summer 2024 will be “significantly ahead of summer ‘23.”

The shares trade on a relatively expensive price earnings ratio of 25 but are worth keeping an eye on.

How to invest or trade in small cap shares with us

1. Learn more about small cap shares

2. Open an account with us or practise on a demo

3. Select your opportunity

4. Choose your position size and manage your risk

5. Place your deal and monitor your trade

You can either invest in shares directly or trade using spread betting or CFDs to benefit from leverage.

Keep in mind, leverage means you can gain or lose money faster than expected. Because your position size is far greater than your deposit, you could lose more money than you put in. Be aware also that past performance is not an indicator of future returns.

Learn more about the differences between trading and investing here.

Top small cap shares to watch summed up

The above five companies are just a small selection of top stocks to watch among the small-capitalised companies. Remember that any company can also fail and always do your own research.

Trade and invest in over 17,000 UK, US and global shares from zero commission with us, the UK’s No.1 trading provider.* Learn more about trading or investing in shares with us, or open an account to get started today.

*Based on revenue excluding FX (published financial statements, October 2021).

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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