Small-cap growth stocks are the cheapest they've been in at least 24 years. Here's how one manager is playing it.

Growth stocks typically trade at premium prices. But in this market, rising interest rates have turned small-cap growth stocks into a bargain group. This may be a beautiful setup for long-term investors.

This is the cheapest that the S&P Small Cap 600 Growth Index has been, relative to the S&P 500, since FactSet started tracking the data in 1998. This is a subset of the S&P 600 Small Cap Growth Index SML, +1.91% that includes 332 companies exhibiting higher growth characteristics based on “sales growth, the ratio of earnings change to price, and momentum,” according to S&P Dow Jones Indices. You can read more about the index criteria here.

Over the past year, as the consensus forward 12-month EPS estimate for the small-cap growth group increased by 47%, the ETF was down 11%. Meanwhile, SPY’s EPS estimate increased 20% while its shares were flat. An attractive small-cap growth stock Neuman named FirstService Corp. FSV, +2.51% FSV, +1.85% as an example of a small-cap growth stock in an industry investors may not typically associate with growth: residential property management. The company is based in Toronto and is the second-largest holding of the Alger Weatherbie Specialized Growth Fund ASMZX, +4.02%, which specializes in finding growth stocks off the beaten path, he said.

He said the acquisitions have added to the breadth of the company’s services, making it more efficient to enable even more expansion.

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