Small-cap shares are undoubtedly more risky than their larger counterparts, but they also offer the potential for much bigger returns.
Investors only need to look at shares like Webjet Limited (ASX: WEB) and Corporate Travel Management Ltd (ASX: CTD) to get an idea of how rewarding an investment in a successful small-cap share can be.
With that in mind, here are three small-cap shares that I think offer a pretty decent risk-reward proposition right now:
Adacel Technologies Limited (ASX: ADA)
Adacel Technologies is a $189 million company that develops and operates simulation and air traffic control systems for the civil aviation and defence sectors. The company commands a more than 90% market share within the U.S. training systems market and long-term recurring revenue contracts now account for approximately 50% of its forecast revenue. Importantly, the shares are currently trading at around 18x earnings, which isn't expensive when you consider Adacel's rock-solid balance sheet and positive growth outlook.
Appen Ltd (ASX: APX)
Appen is a $263 million technology company that develops voice recognition and language data software that is used in a wide range of applications including cars, mobile phones and consumer electronics. Although the company has enjoyed several years of very strong growth, management is confident this growth will continue and is forecasting mid-to-high teen EBITDA growth over the course of the next 12 months. Appen is debt free and currently trades on a forward price-to-earnings ratio of around 20.5.
Sealink Travel Group Ltd (ASX: SLK)
Sealink Travel is a $444 million company that operates some of the most popular ferry services and tourist cruises around Australia. The company is facing some short term headwinds from its Gladstone logistics business, although I expect this will be more than offset by the strength of the tourism sector over the next few years. As a result, now could be a good opportunity for longer-term investors to have a closer look at the company, especially since the shares are now trading at just 18x earnings and offer a growing dividend yield of around 3%.
