Here are three minnows that jump out, warranting a closer look and perhaps a tentative first purchase. 

Bloomsbury 

Books are likely to prove a very popular (and cheap) form of entertainment over the next few weeks. Despite UK shop closures, this could be good news for Harry Potter publisher Bloomsbury (LSE: BMY). I say ‘could’ because, right now, the company said it can’t really estimate the extent to which coronavirus has impacted trading.

Nevertheless, I’d be surprised if it failed to sell a decent amount of hardbacks, paperbacks, ebooks and audiobook downloads over the next few weeks/months.

In addition to the possibility of earnings remaining fairly stable, Bloomsbury’s prudent handling of its finances means it’s entered lockdown in a strong position. Net cash of £31m on the balance sheet is a nice buffer to have. 

Considering the shares are down roughly 25% from the highs achieved towards the beginning of 2020, now could prove to be a decent entry point. 

888

The decimation of the sporting calendar, including the postponement of Euro 2020 and the Olympics, is having a huge impact on gambling firms, such as William Hill and GVC. One stock that may turn out to be less affected than most is online gaming provider 888 Holdings (LSE: 888).

Last week, the company reported “increased customer activity” around its Casino and Poker products. It’s hoped this will make up for the impact on its Sports division (which made up 16% of revenue last year).

Obviously, no investment is risk-free. If sporting events are disrupted until September, the earnings hit could be in the “high single-digit millions of dollars,” according to the small-cap. So caution is still advised.

Despite this, 888 would be my clear preference in the gambling space. Its online-only business model means it can dodge the fixed costs associated with maintaining a physical estate. The company also reported having almost $100m in cash at the end of 2019. 

Boku

A final pick of small-cap firms likely to see a rise in demand is independent carrier commerce company Boku (LSE: BOKU). Put simply, Boku’s technology allows consumers to pay for things using their mobile phone number. Based on recent figures, this is proving increasingly popular.

Last year, the £200m-cap managed to grow revenue by 42% to just over $50m. It also announced its maiden post-tax profit ($400,000 compared to a loss of $4.3m in 2018).

This demand has only got stronger over the last month. It remarked on “significant increases in new users” of its platform. The focus was “particularly for streaming video services and gaming in those countries hardest hit by Covid-19.”

Unsurprisingly, this encouraging news has been reflected in the behaviour of Boku’s share price. It fell in tandem with everything else during March. But it’s now back to where it was at the start of the month.

Things are likely to stay volatile. But risk-tolerant investors may wish to consider taking a stake sooner rather than later.

However, with the company forecast to deliver further earnings growth over the next two years, it could offer the potential for a period of renewed growth. As such, now could be the perfect time to buy.

Improving outlook

IQE’s growth strategy seems to be relatively sensible. The company has sought to put in place a sound balance sheet through which to deliver growth that is highly sustainable. To this end, it conducted a capital raising last year which provided it with the capital required to broaden and expand its operations into new areas which were previously difficult for it to successfully target.

The result of seeking to keep risks at a sensible level could be high rewards over the long run. It may also mean that the volatility which can be present among technology-focused stocks is somewhat lacking, with the business appearing to have a sound means of generating improving profitability through areas such as Photonics and the adoption of its VCSEL technology in mass market consumer applications.

Growth potential

Looking ahead, IQE is expected to report a rise in its bottom line of 12% in the current year, followed by further growth of 35% in the next financial year. Clearly, its growth rates are relatively high, but what may be surprising to investors is the company’s valuation. It trades on a price-to-earnings growth (PEG) ratio of just 0.7, which suggests that it may offer a wide margin of safety.

Certainly, investor sentiment may not be particularly strong. Many investors may be of the view that the company is due a pullback after its gain of 5.4 times in the last three years. But with a relatively low valuation, it appears to offer growth at a very reasonable price and could be worth buying for the long run.

Risk/reward

Also offering the potential to deliver high returns is independent direct carrier billing company Boku (LSE: BOKU). It provides a means for consumers to pay for goods and services on their smartphone, with the amount charged to their mobile phone bill. Its technology essentially makes a smartphone a secure payment method and it could be seen as a substitute to a debit card.

Boku reported improving financial performance on Tuesday when it released its results for 2017. The company’s net loss was cut by 64%, while its revenue increased 42% to $24.4m. It also saw an increase in monthly users to 8.1m, an impressive rise of 241%. And with the company optimistic about its future prospects, it would be unsurprising for its progress to continue.

Clearly, Boku is a relatively high-risk stock. Technology can change rapidly and may mean that it’s unable to deliver on its long-term potential. But for less risk-averse investors, it could be worth a closer look.