Businesses with small capitalisations are inherently riskier, but also offer much more potential growth simply because of their size.
The share prices of small caps have larger price swings up and down than large blue chips because of the small numbers of buyers & sellers and smaller number of shares being sold.
Here are three small caps I have my eye on that are trading at a low price:
Pureprofile Ltd (ASX: PPL)
Pureprofile is an internet based survey company with a market capitalisation of $41 million.
The idea behind Pureprofile is to create a large database of people which would be representative of the population. It offers its database to government bodies, businesses and charities to run a survey to see what they think of a new product, service, policy or anything else a survey can be about.
Pureprofile runs the survey and helps the entity understand the results. This can be a powerful method of market research when a business can make changes to an advertising campaign and ask the same people for their new perspective.
It operates in Australia, Europe and North America and is expanding all three operations.
Pureprofile isn't yet making a statutory profit and doesn't pay a dividend, however it made a pro forma profit of $1.6 million after excluding acquisition costs in its results to 31 December 2016.
Freelancer Ltd (ASX: FLN)
Freelancer is one of the biggest online portals in the world connecting freelancers with employers offering projects for money. It currently has a market capitalisation of $404 million.
It has taken a while for the business to grow its number of users and presence. It has to generate a lot of revenue to make up for the amount it is spending on advertising and research & development, so it is now just reaching profitability.
In its full-year results to 31 December 2016 it revealed that operating net profit after tax was $0.1 million, which excludes share based payments.
This means that most of the future revenue (with a gross profit margin of 87%) should fall to the company's bottom line and the profit should grow at a quick rate from now on.
Freelancer isn't yet making a statutory profit or paying a dividend.
Buymyplace Ltd (ASX: BMP)
Buymyplace is an internet-based company that allows people to sell their property without needing an agent. It currently has a market capitalisation of $11 million.
Selling through a traditional agent can cost many thousands of dollars and some vendors would prefer to keep as much of the sale price as they can.
Buymyplace reported that its revenue for the six months to 31 December 2016 grew by 129% compared to the prior corresponding period. It isn't yet making a profit or paying a dividend.
I like the idea of all three of the above businesses. Buymyplace may be a little too speculative at this stage, but Freelancer could turn into a future blue chip of Australia, whilst Pureprofile's underlying business is already profitable.
At the current prices, Freelancer would be my favourite to buy of the three.
For much more reliable growth than small caps, you should check out our favourite three growth stocks of 2017.