Although the S&P/ASX 200 (Index: ^AXJO) (ASX:XJO) has managed to rise by around 17% over the past 12 months, many small-cap investors have found it difficult to generate comparable returns over the same period.
Fortunately, some of these beaten-up small cap shares are beginning to look quite compelling from a risk-reward perspective, including:
Capilano Honey Ltd (ASX: CZZ)
Capilano’s first-half result was well below my expectations and I remain unconvinced that its sales growth will be dramatically different in the second half of FY17. Nonetheless, I remain positive on the company’s longer term prospects as the demand for Australian honey is very likely to grow stronger over time. The shares are currently trading on an undemanding price-to-earnings ratio of around 12 and I think could be a good performer over a three to five year investment horizon.
Scottish Pacific Group Ltd (ASX: SCO)
Scottish Pacific is a relatively new listing on the ASX and specialises in providing working capital finance to small and medium sized businesses. Ultimately, the company’s success is dependent on good levels of economic growth and the ability of businesses to grow their working capital requirements. Scottish Pacific has done a good job of growing its loan book so far, although it did hit a speed hump late last year after announcing a profit downgrade. For this reason, I wouldn’t rush in to buy the shares right away but could be worth a closer look if business sentiment improves over time.
Nearmap Ltd (ASX: NEA)
Shares of Nearmap have been given a nice boost over the past week but are still trading at a 40% discount to their 52-week highs. The market remains quite nervous about its progress in the U.S. but last’s week market update showed that the aerial imaging company is beginning to gain traction in this crucial market. If the company can string together a couple of positive quarters in a row, then I think the shares will be trading at significantly higher prices over the next 12 months. With that said, I would like to see at least one more quarter of strong growth before jumping in and buying the shares.
5 stocks under $5
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Motley Fool contributor Christopher Georges owns shares of Capilano Honey Limited. The Motley Fool Australia owns shares of Capilano Honey Limited and Nearmap Ltd. 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.