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3 exciting small cap shares to watch

Although the small end of the market is higher up the risk scale and unsuitable for some investors, I believe it is well worth getting a little exposure to it if your risk profile allows it.

After all, over the last 12 months the Small Ordinaries (Index: ^AXSO) (ASX: XSO) is up almost 20% compared to a 10% gain by the All Ordinaries.

Three top small cap shares that I think are worth a closer look are listed below:

Citadel Group Ltd (ASX: CGL)

Citadel Group is a specialist in secure enterprise information management. It helps manage information across the health, national security, and defence industries as well as other government departments like education. Given how important data security is in the information age, I expect demand for its services to grow strongly over the coming years. At present its shares are trading at 23x estimated FY 2019 earnings, which I believe is more than fair and provides a compelling risk/reward.

ELMO Software Ltd (ASX: ELO)

Another fast-growing small cap tech share which I think would be a great option for investors is ELMO Software. It is a leading provider of integrated cloud human resources and payroll software solutions, providing businesses with a centralised approach to managing an employee’s lifecycle from hire to retire. This year the company looks set to smash its prospectus forecasts again thanks to strong organic growth and the benefit of acquisitions. While its growth has been impressive, it is still only scratching at the surface of an ANZ market opportunity estimated to be worth upwards of US$770 million per year.

Money3 Corporation Limited (ASX: MNY)

Although its shares have just touched on an all-time high, I don’t believe it is too late to invest in this growing financial services company. Money3 used to be involved in controversial payday loans, but has successfully transitioned away from that into secured auto loans. I have been impressed at how profitable the move has been and the long runway for growth that the company has from it. Pleasingly, management is keen to share these profits with shareholders, making it a potential dividend star of the future. At present Money3’s shares provide a trailing fully franked 3.6% dividend.

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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 Citadel Group 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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