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3 small cap shares with strong growth potential

One goal that many investors have is to beat the market return each year.

To achieve this, I think a little exposure to small cap shares can be very helpful. After all, the S&P/ASX Small Ordinaries (Index: ^AXSO) (ASX: XSO) has outperformed its illustrious peer the S&P/ASX 200 significantly over the last 12 months.

During this time the small cap index has posted a gain of 11.5% compared to a 1.9% decline by the benchmark index.

With that in mind, here are three small cap shares that I think investors ought to consider snapping up and adding to a diversified portfolio:

ELMO Software Ltd (ASX: ELO)

Since listing on the ASX this cloud-based talent management software solutions provider has smashed expectations and its prospectus forecasts. I believe the strong demand it is experiencing and the large addressable market make it worth considering today. ELMO recently raised $45 million through an institutional placement at $5.40 per share. These funds will be used to accelerate its growth.

National Veterinary Care Ltd (ASX: NVL)

In the first-half of FY 2018 this growing veterinary company posted a 27.6% increase in revenue to $41.6 million and a 27.7% lift in net profit after tax to $3.3 million. I expect more of the same in the second-half and beyond thanks to the solid organic growth it is generating and the growth through acquisition opportunities the company has in the highly fragmented industry it operates in.

Zenitas Healthcare Ltd (ASX: ZNT)

Zenitas is a growing home care and health services company which listed on the ASX last year. With the National Healthcare Reform aiming to push the burden of healthcare services from hospitals into primary care, I believe Zenitas is in a great position to profit. Its recent half-year results demonstrated this, with pro forma net revenue coming in at $34.8 million and earnings before interest, tax, depreciation and amortisation at $5 million. This was a 53% and 51.5% increase, respectively, on the prior corresponding period.

As well as ELMO, National Veterinary Care, and Zenitas, I think these up and coming stars could be future market darlings.

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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 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 Scott Phillips.

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