Smaller companies can prove to be excellent long-term investments. While they often come with additional risks, including a lack of liquidity and less stable performance than their larger peers, the potential rewards on offer can also be stunning.
For example, Russia-focused mining company Amur Minerals (LSE: AMC) is up by 21% today despite releasing no news flow. However, just last month the company released a couple of pieces of news which indicate that it is making encouraging progress.
The first piece was an announcement that its 2015 drilling programme has been successfully completed. Following this news, the company’s CEO Robin Young expects there to be a substantial upgrade in an earlier resource estimate, which would clearly be positive news for the company’s investors.
The second piece of encouraging news flow was the purchase of a drilling rig and other capital equipment. They can be used from March 2016 and are essentially the seed capital fleet of the development of the Kun-Manie project, with a lifespan in of 4-5 years being expected by the company.
Clearly, Amur is at the start of a long process towards becoming a fully-fledged mining company. And, while there a number of risks ahead including logistical challenges, political risk and, of course, the need for further financing, less risk averse investors seeking a smaller mining play could be interested in buying a slice of the business for the very long term.
Similarly, Africa’s low-cost airline Fastjet (LSE: FJET) could prove to be a sound long term buy. As with Amur, its shares are highly volatile, as evidenced by their 9% fall today. However, this was due to disappointing passenger statistics for November, with the company’s load factor falling by 3% to 60%.
This was caused by a prolonged Tanzanian presidential election process, which means reduced demand from the country’s government and civil service customers. In addition, poor weather in Tanzania also hampered the company’s performance, with 84% of flights from Tanzania running within 15 minutes of the scheduled departure time.
Looking ahead, Fastjet is forecast to report a maiden profit in the next financial year. If it is able to do so then its shares could be given a major boost and, with them trading on a forward price to earnings (P/E) ratio of just 6.1, there is significant scope for an upward rerating. Clearly, today’s news is disappointing and, while further challenges could lie ahead, for less risk averse investors Fastjet could offer upbeat capital gain potential.
Meanwhile, mobile payment solutions company Monitise (LSE: MONI) continues to underwhelm, with its shares having fallen by 22% in the last month. Looking ahead, there seems to be a lack of a positive catalyst to reverse the trend which has seen them lose the vast majority of their value in recent years.
Certainly, a new management team could make a difference and refresh the company’s strategy. However, it seems as though the market is only interested in when Monitise will make a profit and, while it has an envious list of blue-chip clients, a very popular product and operates in a major growth industry, Monitise still has not proven that it can become a viable business in the long run.
As such, and while it is a stock to watch, it may be prudent to await further developments regarding its financial performance before buying a slice of it. That’s especially the case since Monitise is forecast to report a pretax loss of £27m in the current year, which could further hurt investor sentiment.