3 small cap shares with strong growth potential

In my opinion the Australian share market isn’t short of small cap shares with strong long-term growth potential.

Three up and coming shares that I think investors should take a closer look at are listed below. Here’s why I think they are worthy of a place on your watchlist:

Experience Co Ltd (ASX: EXP)

Experience Co is an adventure tourism company that I believe will benefit from the Australian tourism boom and millennials’ preference for experiences over possessions. Now could be an opportune time to invest after a once in a generation inclement weather event impacted the business and led to an earnings downgrade and subsequent selloff of its shares. Although they have rallied in recent weeks, they still trade at a reasonable 17x estimated FY 2019 earnings. I think this is a fair price to pay for a company with the potential to grow at an above-average rate for many years to come, weather permitting.

Nearmap Ltd (ASX: NEA)

Nearmap is a geospatial map technology provider that has been on fire over the last 12 months and seen its share price rise an impressive 75%. A good portion of this rise has come in 2018 thanks to improvements in its United States-based business. Following positive changes to its operations in the country, Nearmap recently advised that U.S. annualised contract value had risen to US$10 million during the March quarter. While this is still only a relatively small number in comparison to its market capitalisation, management appears optimistic that there is a significant market opportunity in the country. Nearmap remains on my watchlist for now, pending its growth in the U.S. market.

Supply Network Limited (ASX: SNL)

Supply Network is an after-market parts supplier to the commercial vehicle industry which has had a strong FY 2018. Earlier this month the company upgraded its full-year earnings guidance on the back of positive trading conditions. Instead of earnings before interest and tax (EBIT) of approximately $10.8 million, management lifted its guidance up to $11.5 million. This will be an increase of around 19% on FY 2017’s result, which I think makes its shares good value at 20x estimated full-year earnings.

These small cap shares could also be worth a closer look as well. They have been kicking goals in FY 2018 and I expect more of the same next year.

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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 Nearmap Ltd. and Supply Network Limited. The Motley Fool Australia owns shares of EXPERNCECO FPO. 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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