Can you rely on these 2 small-caps to fund your retirement?

Do these two stocks offer long-term profit potential?

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With the FTSE 100 having risen to record highs this year, finding stocks capable of delivering long-term growth at a reasonable price has become more challenging. Margins of safety are now narrower than they were several months ago, while the outlook for the UK economy is arguably less certain than it was even a few weeks ago. Political uncertainty could increase in future, which may harm the outlooks for a number of shares.

Clearly, though, there are still stocks which could be worth buying. Could now be the right time to buy these two smaller companies?

Uncertain outlook

Reporting on Wednesday was wealth manager WH Ireland (LSE: WHI). The first half of its current financial year has seen progress made with its strategy. Both of its main divisions have reported strong momentum in absolute terms, and also when compared to the same period in the previous year.

Notably, the company’s Corporate and Institutional Broking division has increased its transactional revenue. Its pipeline of new business is at its highest level for several years, which suggests the company’s strategy is performing relatively well. Similarly, the company’s Private Wealth Management division has improved its client proposition, with its assets under management and administration increased to over £3bn.

Looking ahead, WH Ireland faces an uncertain future. The outlook for the UK economy remains difficult to predict, with higher political risk, a volatile currency and rising inflation causing some difficulties for the economy. The potential for a higher interest rate may also hurt economic growth. Therefore, while WH Ireland is making progress with its current strategy, trading conditions may worsen. As such, buying a larger and better-diversified sector peer may be a superior option for investors thinking about their retirement plans.

Fully valued?

Pensions consultancy and administration services provider Mattioli Woods (LSE: MTW) has delivered a relatively robust earnings growth performance in recent years. Its earnings have increased at an annualised rate of almost 10% during the last four years, which shows that the company’s strategy has been working well.

Looking ahead, more growth is forecast. The company is expected to report a rise in its bottom line of 10% in the current financial year, followed by further growth of 9% next year, This could help to keep investor sentiment relatively bullish after a share price gain of 15% in the last year.

However, when it comes to capital growth potential, Mattioli Woods may have somewhat limited appeal. Its shares appear to be fully valued at the present time. For example, they trade on a price-to-earnings growth (PEG) ratio of 2, which suggests they may struggle to perform well on a relative basis over the medium term.

Certainly, the business seems to be performing well. However, with a high valuation the company lacks value appeal. Dividend growth potential could be high, since the company pays out just 42% of profit as a dividend. However, with a dividend yield of just 2%, there may be better options available elsewhere.

RISK WARNING: should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice. The Motley Fool believes in building wealth through long-term investing and so we do not promote or encourage high-risk activities including day trading, CFDs, spread betting, cryptocurrencies, and forex. Where we promote an affiliate partner’s brokerage products, these are focused on the trading of readily releasable securities.

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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