Although small-cap shares have underperformed the broader market over the past few months, I still think this is an area of the market where investors can generate very good long-term returns.
In addition to their better growth prospects, many small-cap shares are also trading at more attractive valuations compared to their larger counterparts.
With that in mind, here are three small-cap shares that I think are worthy of a closer look:
Zenitas Healthcare Ltd (ASX: ZNT)
Zenitas Healthcare re-listed on the ASX in January 2017 and is a $47 million community healthcare company that operates in three main markets – allied health, home care and primary care. It currently operates across 54 locations and employs around 760 healthcare professionals. The company is expected to rapidly grow its network through an acquisition strategy as a result of the fragmented nature of the markets it operates in. At its first-half results, Zenitas confirmed it remains on track to meet its prospectus forecasts for pro-forma EBITDA of $6.6 million.
Baby Bunting Group Ltd (ASX: BBN)
The Baby Bunting share price has fallen nearly 40% from its 52-week highs after the company warned that investors should expect to see comparable sales growth to moderate over the remainder of the financial year. While this was disappointing, the baby retailer is still expected to deliver very strong earnings growth on the back of new store openings and mid-single-digit same store sales growth. I would like to see a further update from Baby Bunting before buying the shares, although they are beginning to look quite attractive at less than $2 apiece.
Apollo Tourism & Leisure Ltd (ASX: ATL)
Apollo Tourism and Leisure has only been listed since November 2016 but has so far shown some very promising signs. The $200 million company manufactures, rents, sells and distributes a range of recreational vehicles (RVs), campervans and caravans across Australia, New Zealand and North America. This area of the market is expected to grow quite strongly over the coming years as the baby boomer generation increases its spend on travel and leisure pursuits. Although the outlook for the company is positive and the shares are currently trading at just 16x earnings, I would like to see a reduction in the company's debt levels before buying the shares.
