For many investors finding quality small-caps may seem like a daunting task, given the lack of information on them and fact they carry a larger amount of risk.
However, the fact that these smaller companies are under-researched means that they usually fall under the radar of many investors, allowing them to find bargains more easily. So here are three small-caps that I think offer growth potential and a reasonable price given their risk.
1. UXC
Technology company UXC Limited (ASX: UXC) is Australia's largest locally owned IT services and solutions business, primarily servicing medium to large businesses. With a better-than-expected FY14 report, UXC is now looking forward to some explosive growth. Its five most recent acquisitions have been the main contributor to its 30% fall in earnings, but should enable it to steal greater market share in the years ahead. Furthermore, management is going full-throttle by aiming to double margins over the next few years and create profit growth in excess of 100%.
Despite its current price-to-earnings ratio of 21, which may seem hefty to some investors, its current price of $0.93 means that it trades on around 13 times FY15 earnings. If you're looking for the technology stock of the future, UXC is definitely a company to consider.
2. Nearmap
Nearmap Ltd (ASX: NEA) provides map technologies for a range of business, enterprise and government entities. Unlike UXC, its FY14 report was outstanding, lifting its $1 million loss to a $7.1 million maiden profit. With its share price climbing higher, investors may shy away from Nearmap, but I think there's plenty more growth. Recently it completed a series of test flights in the U.S. as part of an effort replicate the success it's created in Australia.
Furthermore, Nearmap sits on an extremely healthy balance sheet, with cash holdings of $23.3 million and no debt, providing it with some leeway for future expansion. Despite its high price-to-earnings ratio of 28, I think Nearmap shares are a relatively solid bet for your money. Conservative investors may want to wait for a lower entry point, but it seems to me that Nearmap's share price still offers reasonable value to investors.
3. OzForex
Ozforex Group Ltd (ASX: OFX) provides small customers a handy and affordable way of transferring money between countries and currencies. Despite being heavily sold off by investors in the past few months, I think investors are offered a rare opportunity to grab a bargain given its current share price is approaching its $2 IPO price. OzForex's cheap and simple-to-use services make it stand out against the big banks who charge high fees with lower efficiency.
As it takes away more market share away from the big banks in the next few years, OzForex will be expected to see greater customer retention rates and cost savings given its scalable business structure. Current prices seem reasonably attractive and OzForex is well positioned to grow earnings in the decades to come.
