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2 exciting small cap stocks

Most investors tend to stick to businesses that have market capitalisations that are above $1 billon. However, there’s a huge number of businesses that are smaller than this but could make just as good investments.

In-fact, small caps can make even better investments because they’re simply smaller. It’s much harder for a $1 billion company to double in value compared to a $100 million company because of their respective sizes.

With that in mind, here are two exciting small caps which could grow strongly over the coming years:

Propel Funeral Partners Ltd (ASX: PFP)

Propel is a newly listed ASX share that operates in the funeral industry. It’s the second biggest operator behind InvoCare Limited (ASX: IVC) but mainly operates in the regional areas of Australia, perhaps leaving enough space for both to succeed.

Management estimate that the business has a market share of 4.1% in Australia and 6.7% in New Zealand. The big driver of future organic growth for Propel is that the number of deaths is going to grow because of Australia’s ageing population.

Demand for death care services is expected to grow by 1.4% per annum between 2016 and 2025 whilst demand in New Zealand is predicted to grow by 1.1% per annum between 2016 and 2025.

Some investors may want to wait until Propel reports its first full-year results before jumping in, but the share price could grow a lot by then.

Zenitas Healthcare Limited (ASX: ZNT)

Zenitas is a community-based healthcare business, it provides in-home and clinic care to reduce the burden on higher costing healthcare like hospitals.

There is going to be a growing demand for in-home healthcare services as a lot of patients would prefer to stay in the comfort of their own house rather than go to a hospital or aged care facility.

Zenitas operates in three different sections of community healthcare, the three are primary, allied and home care.

The business has predicted organic growth of between 7.5% to 10% in FY18 and will likely start paying a dividend too. If management can continue identifying bolt-on acquisitions Zenitas should be able to spread its geographical footprint and improve margins.

Foolish takeaway

I think both shares have a great chance of beating the market over the coming years, which is why I’m a shareholder of both. Of the two, Zenitas is trading at a much lower price/earnings ratio, so it’s probably the better value buy today.

If you want even more small cap ideas then you should check out these hot stocks.

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Motley Fool contributor Tristan Harrison owns shares of InvoCare Limited, Propel Funeral Partners Ltd, and Zenitas Healthcare Ltd. The Motley Fool Australia has recommended Zenitas Healthcare 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.

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