I’m looking for shares to add to my portfolio that I think will perform well in 2022. I’ve been researching Franchise Brands (LSE: FRAN) and ActiveOps (LSE: AOM), which I think have great potential. Each company has a share price under £5, but it’s most important to understand the market value, too. Not every share has to be a penny stock, like this one.
Let’s take a look at these small-cap shares to see if I should buy them.
A top share under £5
The first of the shares I’m considering is Franchise Brands. I’ve held the stock for a number of years now, but I’m considering topping up my holding.
Franchise Brands is a group of businesses based on a franchise model. Its combined network consists of over 425 franchises across five brands. There is a business-to-business division comprising Metro Rod, Metro Plumb, and Willow Pumps. FRAN also has a business-to-consumer division that incorporates ChipsAway, Ovenclean, and Barking Mad.
I was first interested in Franchise Brands because of the management team. Stephen Hemsley is the executive chairman and co-founded the business in 2008. He was previously the non-executive chairman of Domino’s Pizza, and in his 21 years at the company, took it from a value of £25m to almost £1.5bn. As Domino’s Pizza is also a franchise model, it gives me confidence in owning shares of Franchise Brands.
Net profit is forecast to grow almost 33% this year. The shares are priced at 142.5p right now, and valued on a price-to-earnings (P/E) ratio of 26. This isn’t cheap, so there’s a risk that if growth doesn’t continue, the price could fall.
Otherwise, the business suffered during last year’s lockdowns, so there’s a risk that rising Covid cases could impact the business again.
But on balance, I think the shares are a buy for my portfolio.
The next opportunity
I’m also looking at the shares of ActiveOps. The company listed through an initial public offering (IPO) earlier this year, and the price is currently 186p. However, the shares have been quite volatile since listing.
The company offers two software platforms for businesses to improve their back-office operations. The first is ControliQ which is aimed at simplifying operations and increasing productivity. Next is WorkiQ, a platform that focuses on workforce analytics when employees are working in the office, or remotely.
The company released a trading update in October saying that the first six months of the year had been strong. Revenue grew an impressive 22%, but operating profit growth was even better than the board expected. Expansion continued across all target regions and sectors too.
ActiveOps may be considered risky as the company is still loss-making. It’s still investing in its staff, and on developing its technology platforms. Because of this, it’s not possible to value the shares with a P/E ratio. I think this has made the share price be quite volatile since listing. In fact, the shares fell almost 30% at one point since the IPO.
But I like the potential economics of this business model resulting from its software platforms. The shares are a buy for my portfolio.