Discover 3 small-cap shares with explosive potential

In the last 12 months one of the best areas of the market that investors could have put their money was in small cap shares.

During this period the Australian small cap shares which are included in the S&P/ASX SMALL ORDINARIES (Index: ^AXSO) (ASX: XSO) have outperformed their illustrious peers in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) by some distance.

Since this time last year the Small Ordinaries index has put on a whopping gain of almost 16%, compared to a 3% drop in Australia’s benchmark index. For this reason I believe it is clear to see that small cap shares can be a good addition to most portfolios.

But not all small cap shares are equal. I feel it is fair to say that whilst some are destined for strong growth, there are others that are best avoided. I have picked out three which I believe have the potential to be great long-term investments. Here they are:

ChimpChange Ltd (ASX: CCA)

ChimpChange is an ambitious California-based company aiming to deliver a better way to bank with an affordable, fun, and frictionless user experience for US consumers. It allows its customers to send instant mobile payments and make payments wherever MasterCard is accepted, while doing all of their daily transactional banking right from its app. The recent launch of its cheque cashing tool caught the eye of the market and sent its share price higher by 15%. I can see its services appealing to its target demographics (millennials and the underbanked) and believe this is a fintech company with a lot of growth ahead.

Melbourne IT Limited (ASX: MLB)

Melbourne IT is a provider of internet related services which include critical web hosting, online brand protection, and enterprise services for a wide range of customers. Whilst it is a very competitive industry, I believe its affiliation with TPG Telecom and its collection of brands should prove beneficial for growth. As well as this, the recent acquisition of data and analytics provider InfoReady and the offloading of its international internet domain names business to Tucows appears to have been an astute move. Management upgraded its full year profit guidance in light of the acquisition. Its shares are down 18% year to date, which I feel could be a good entry point for a long-term investment.

Pro Medicus Limited (ASX: PME)

The Pro Medicus share price has gone gangbusters in the last 12 months and rocketed higher by over 128%. But this is all for good reason if you ask me. Earlier this month the medical imaging company won a new $18 million contract for its popular Visage 7 technology. This is the third key contract win in the United States in as many months for Pro Medicus. Whilst the shares are changing hands at around 100x annualised earnings, I believe its exciting growth prospects and debt-free balance sheet may well justify paying a premium.

Lastly, before you look at investing in one of these shares, I would highly recommend you to check to see if you own on of these three rotten ASX shares. Each could be acting as a drag on your portfolio and may be better off swapped out if you ask me.

3 Rotten Shares to Sell, and 1 to Buy Today

After a double-digit rally for the ASX since 2016 lows, investors should be on high alert. You'll find a full rundown below of 3 shares we think you should avoid today plus one top pick worth buying, even if the market turns south and the RBA keeps rates at an "emergency low." Simply click here to uncover these stocks.

Motley Fool contributor James Mickleboro 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.

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