As the following chart shows, small and emerging micro-cap stocks have underperformed their larger counterparts on the ASX in recent years. This suggests there might be opportunities among them.

micro

Source: S&P Dow Jones Indices

The thing to keep in mind when investing in micro-caps is that they all have a great story to tell, but most will not turn out to be good investments.

Having found something that ticks all the boxes, a common approach used by early stage investors is to make a small initial investment and to increase the commitment later if and when the company has achieved a predetermined milestone, such as reaching positive cash flow or hitting a revenue target.

Using a watch list is a good way to monitor the progress of interesting companies to see if they are on track. Here are five micro-to-small caps which are worth keeping an eye on:

Smart Parking Limited  (ASX: SPZ) has developed technology which uses sensors to provide information on car park availability. It can also help generate data for car park owners and managers. Smart Parking currently operates over 1,100 car parks.

The company is not yet profitable, but has no debt and revenues are growing quickly. Clearly there is massive potential if Smart Parking can become a leader in this space.

Shares are up around 220% in the last 12 months.

LiveTiles Ltd (ASX: LVT) provides a platform for creating digital dashboards and sites using Microsoft SharePoint and Office 365. LiveTiles has an agreement with Microsoft under which their product is offered as a free trial to all commercial Office 365 customers in the US.

The company is still very early stage, with around 120 paying customers and annualised subscription revenue of $649,000 at 31 March.

It is interesting to note that award winning fund manager Regal Funds Management has recently become a substantial shareholder.

IOT Group Limited (ASX: IOT) recently commenced trading on the ASX after a reverse takeover of Ardent Resources.

IOT has a range of smart watches, a drone product designed to produce video and take selfies, and a global internet TV platform known as Intervision.

News reports of IOT’s flying selfie stick and announcements regarding distribution deals in the US, Japan and Australia have put a rocket under the share price, which is up nearly 700% in the last month.

The company is currently sending out its product to prominent selfie taking celebrities, which seems like a good strategy for generating more publicity. Time will tell whether this translates into sales and IOT can become a contender in the competitive tech hardware industry.

Adslot Ltd (ASX: ADJ) has developed a platform for trading digital media.

The company has a market capitalisation of around $100 million and is not yet profitable, but has been growing revenues strongly and recently completed a $4.6 million capital raising.

Shares have been volatile over the last 12 months, but are pretty much back where they started, at around 10 cents.

Vmoto Ltd (ASX: VMT) manufactures electric scooters which it sells worldwide. Initially with a focus on the Chinese market, it is now looking to grow sales in other regions with better profit margins.

Unlike many of its fellow microcaps, Vmoto is profitable. However, the company has indicated a potential softening of sales in China this year. Based on its latest market update, it sold around 19,000 units in the March quarter, which was below expectations.

It will be interesting to see if the company can offset slower sales in China with growth in other countries.

Vmoto’s products have received positive reviews, however it has plenty of competition. Shares are down 60% in the last 12 months.

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Motley Fool contributor Matt Bugden has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.