Investors have enjoyed spectacular gains in the past few months, with the ASX approaching record highs. Furthermore, our record low interest rates have also raised demand for high-yield dividend stocks. This means that the prices of reliable blue chips are driven up, providing investors with a much lower margin for gains.
That's why I'm always on the lookout for smaller companies that offer compelling long-term growth prospects. Given their under-researched nature, quality small-cap companies usually trade at discounted prices. So here are three excellent small-caps that I think have the potential to become Australia's next blue-chips.
1. Retailer Cash Converters International Ltd (ASX: CCV) is a small-cap with massive future prospects. Although earnings have taken a beating in the past couple of years, Cash Converters continues to have a solid business foundation. While it is often thought that it's a retailer, Cash Converters generates the bulk of its revenues from its financial services such as personal loans.
As it expands internationally into New Zealand and South America, Cash Converters is likely to be positioned much more firmly in the lucrative financial services industry. I think current prices represents an opportune time to grab a small-cap bargain.
2. Shine Corporate Ltd (ASX: SHJ) is currently one of my favourite small-cap stocks on the ASX. Shine is an Australian litigation firm with significant interests in the personal injury market. In the past few years, Shine's been rapidly moving out of its native ground in Queensland. Its two recent acquisitions raises its exposure to the Western Australian legal market. I continue to favour its growth through acquisition strategy and its strong organic growth seems to complement its acquisitions very well.
Despite the recent chain of acquisitions, Shine continues to hold a solid balance sheet and I'm always happy to add more shares to my collection.
3. Yellow Brick Road Holdings Ltd (ASX: YBR) is a junior diversified wealth management business run by well-known investor Mark Bouris. Although it hasn't reached profitability just yet, Yellow Brick Road's continuous stream of acquisitions is starting to boost its dominance in the financial services industry. As its branches start to reach maturity, it might not be long until we see its profits enter into positive territory. Despite strong price gains throughout the past couple of months, Yellow Brick Road continues to be an outstanding long-term growth play.
