Investing in small-cap stocks doesn't have to be extremely risky nor do such investments always produce an all-or-nothing outcome.
For example, it wasn't that long ago when the $6.3 billion real estate giant REA Group Limited (ASX: REA), or the $5.5 billion job listing website SEEK Limited (ASX: SEK) were small-cap stocks which many risk-averse investors overlooked.
With those two companies notching up gains of 2,728% and 551%, respectively in the past nine years, it's no wonder why I believe Australia's best investments lie at the small-cap end of town. That is, outside the S&P/ASX 200 Index (ASX: XJO) (INDEXASX: XJO).
Many of these companies remain poorly researched by the market's analysts, giving us the ability to exploit possible undervaluations.
If I didn't already hold shares in the company and had $5,000 to spend today, Cash Converters International Ltd (ASX: CCV) would be the company I'd buy.
I only recently bought shares in the company and even though they have risen 26% since then, it still has outstanding long-term potential from its $1.14 opening price this morning.
Cash Converters is more than a second-hand goods dealer.
It has a growing international business (recently it purchased a 25% equity interest in the New Zealand Master Franchisor) which includes a growing branch network. Its payday loans business which can now be accessed online by customers is taking off and its stake in the owner of the all-in-one car finance business, Caboodle, appears promising.
With all these combined, it paints a bright future for Cash Converters' shareholders. However, the stock still trades on a low trailing price-earnings multiple (14) and forecast 3.7% fully franked dividend yield.
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Cash Converters is being held firmly in my long-term portfolio and I think it should be in yours. However, with only a 3.7% payout, its small dividend yield means it isn't at the top of income-hungry investors' watchlists.
