Today (9 October), UK small-cap stock Netcall (LSE: NET) delivered a pleasing full-year results report.

I’d give it some serious consideration as a potential buy if I wasn’t already fully invested without any spare cash.

An attractive sector

The business operates as a provider of intelligent automation and customer engagement software. That’s promising because software is a sub-sector of the market that has produced some multi-bagging growth businesses over the past few years.

However, smaller companies do come with elevated risks. This one has a market capitalisation of just £141m and it lives in the FTSE AIM All-Share Index.

Earnings and share prices can be volatile with smaller companies. Netcall itself was posting some gut-thumping decreases in annual earnings in 2018 and 2019. There’s been a business recovery since, but it’s always possible for the company to hit a bad patch of trading in the future.

Nevertheless, today’s results are upbeat, and I like the strong-looking balance sheet, which shows a chunky position of net cash rather than net debt.

But good value can be more than just cheap or low financial numbers. The growth prospects of a business and qualitative factors can play a big part as well. Such considerations are the bedrock of the strategy employed by investing superstar Warren Buffett, for example.

Earnings growth ahead

With Netcall, City analysts expect an uplift in earnings of almost 14% for the current trading year to June 2025. That’s encouraging, and my hope is the business can keep up its growth rate in the years following as it rolls out its cloud-based service offering.

Meanwhile, Chief executive James Ormondroyd said the year just ended (to June 2024) had been one of strong performance. The positive figures in the report back up that statement, such as the 9% increase in year-on-year revenue and 7% in earnings.

There’s growing demand for the company’s cloud services and that’s driving increased revenue visibility and strong cash flow, Ormondroyd said.

The business made “significant” advances with its product offering including the launch of a new cloud contact centre solution called Liberty Converse CX. On top of that, Netcall is integrating GenAI capabilities across its broader Liberty platform.

A vibrant acquisition strategy

As well as organic progress, the company made three bolt-on acquisitions during the year, which enhance the firm’s market position and “open up new opportunities”.

Looking ahead, Ormondroyd said positive sales momentum has continued into the new financial year. There’s a “robust” pipeline and product roadmap, and the level of recurring revenue is growing.

Things are going well for the business, I’d say, and it may have a long runway of growth ahead. However, the market has noticed such attractions. With the share price near 88p, the forward-looking price-to-earnings — or P/E — ratio for the current trading year is almost 24 — that’s quite high.

Despite the valuation risk, I think Netcall is well worth deeper research and consideration and could sit well in a diversified long-term portfolio focused on growth.