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3 top small cap shares to watch

I’m a big fan of investing at the small end of the share market. And while it is a riskier area of the market to invest in, if you choose wisely I think you can gain a compelling risk/reward.

In light of this, three top small cap shares that I think investors should consider today are listed below. Here’s why I like them:

ELMO Software Ltd (ASX: ELO)

This cloud-based talent management software solutions company could be a great investment option in my opinion. FY 2017 was a hugely successful year for ELMO and saw it deliver a 26% increase in revenue to $17 million and EBITDA of $1.2 million. This meant that EBITDA was 42% higher than its prospectus forecast. Pleasingly, it has been a case of so far so good in FY 2018. In the first-half cash receipts were up 39% on the prior corresponding period to $10.96 million. Management also advised that it expects full-year EBITDA to grow to $2.7 million, more than doubling year-on-year.

Money3 Corporation Limited (ASX: MNY)

I was very impressed with the strong performance of Money3’s auto loans business and the above-average earnings growth it delivered in FY 2017. I expect this to continue thanks to its new $150 million debt facility. This debt facility has resolved a major legacy issue for the company and put it in a position to grow its market share strongly over the next three to five years. This should allow it to continue growing its dividend, which currently provides investors with a trailing fully franked 3.3% yield.

National Veterinary Care Ltd (ASX: NVL)

Over the last year this veterinary company has grown its clinic network at home and in New Zealand at a solid rate. Despite this growth, I suspect there is still ample room for it to continue expanding through acquisitions due to the highly fragmented nature of the veterinary industry. Last year National Veterinary Care delivered an impressive 25% increase in revenue and management expects to exceed this level of growth in FY 2018. Ultimately, I think its strong business performance and equally strong growth prospects makes it one of the better small cap shares on the local market.

Finally, here are three more small caps that I'm tipping for big things in the future.

The Disruptors: 3 Revolutionary Aussie Companies to Back for 2018

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended ELMOSFTWRE FPO. The Motley Fool Australia owns shares of NATVETCARE FPO. The Motley Fool Australia has recommended Money3 Limited. 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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