The inventory market loves rags-to-riches story. Everybody’s seen the picture of Jeff Bezos sitting at a small desk in his storage with Amazon scribbled on the wall in blue marker.

Taken again in 1994, it’s turn out to be an iconic picture of how a small home based business can flip right into a billion-dollar firm. A mere three years later, Amazon went public with a share price of solely 9c (when adjusting for inventory splits). Twenty-seven years later, the inventory’s up 190,000%. That’s a 32.2% return a 12 months, on common.

Since then, the US tech trade’s exploded, with firms like Nvidia, AMD and SMCI attaining multi-billion greenback valuations.

However the UK lags behind. Even our most promising tech darling, ARM, jumped ship for the inexperienced grass of the US. The likes of Darktrace, Softcat and Computacentre present promise — however I feel a a lot smaller inventory might be our subsequent massive factor.

Cerillion

A constituent of the smaller tech-focused AIM index, Cerillion‘s (LSE: CER) an upcoming £570m IT companies firm. At first look, it seems to be little greater than a managed companies supplier specializing in billing and charging. 

However there’s a purpose why it’s the highest performer on the AIM index over the previous 5 years, up 1,200%. 

The corporate’s experience in designing and implementing AI-enhanced multi-service communication programs has pushed excessive demand. As an ex-IT trade skilled, it seems to me like an organization that ought to have a a lot increased valuation.

I received’t bore the non-tech readers with particulars but when it’s delivering as marketed (and evaluations recommend it’s) then I’m very bullish about its future.

Financials

Its earnings progress fee of 39%’s already double that of the UK software program trade and never far off US tech big Nvidia. In truth, the businesses share a number of similarities. Each have excessive price-to-earnings (P/E) ratios and overvaluation estimates of 40-60%.

Earnings progress’s forecast to sluggish to 9.8% a 12 months going ahead, which might push up the P/E ratio even additional. That may dampen investor sentiment.

Often, that will make me query additional progress. However Cerillion’s future return on fairness (ROE) is forecast to be 30% in three years, with earnings per share (EPS) anticipated to develop 24% by 2027. 

So I feel it’s simply getting began.  

Danger/reward

Earlier than I get too carried away, such shares are normally extra dangerous investments. With decrease liquidity and a smaller market-cap, it takes much less to maneuver the price. Even one thing as small as a change in CEO can ship issues right into a downward spiral.

Furthermore, tech could also be a high-growth trade however it’s additionally extremely aggressive. Cerillion’s on no account alone on this house and it’s smaller than many opponents. All it takes is one massive participant to return out with the same thought and all of a sudden gross sales dry up.

So it’s an elevated danger/reward scenario.

Ultimate ideas

As is commonly the case in tech, ground-breaking firms outpace a market that’s sluggish to undertake new concepts. As such, Cerillion might be primed for a vibrant future.

With main US tech shares trying more and more overvalued, perhaps it’s time to provide some house to the little guys. I seldom discover a small-cap inventory with this a lot potential so I plan to purchase the shares this month.