Although small cap shares are inherently more risky than their blue chip counterparts, I believe a little exposure to them can be a good thing for a portfolio.
You only need to look at the way the Small Ordinaries has outperformed the illustrious ASX 200 over the last five years to see why.
But not all small cap shares are equal and for every great one, there’s likely to be several duds. Because of this, choosing wisely is even more important at the small side of the market.
With that in mind, here are five small cap shares that I think are among the best on the market right now:
BWX Ltd (ASX: BWX)
BWX is the company behind the Sukin skincare brand. I think it’s fair to say that 2018 has been a disaster for BWX, but if it can turn around its fortunes next year then things could be very different for its share price. I’m not a buyer at this stage, but I’m certainly watching it closely for signs of improvement.
Citadel Group Ltd (ASX: CGL)
Citadel Group is a software and services company that specialises in IT security and data management. I believe it is well positioned for growth in FY 2019 thanks to its Citadel-Information Exchange (Citadel-IX) cloud-based enterprise information management platform. This popular platform allows users to securely access and transfer proprietary and sensitive information remotely.
ELMO Software Ltd (ASX: ELO)
ELMO is a leading provider of cloud-based human resources and payroll software solutions. Thanks to the increasing demand for its software, it recently reported first quarter cash receipts growth of 91% on the prior corresponding period to $10.3 million. I feel confident that there will be more of the same over the course of FY 2019.
Megaport Ltd (ASX: MP1)
Megaport is a provider of elastic interconnection services across a growing number of data centres globally. Thanks to growing demand due to the cloud computing boom, Megaport recently reported a 20% increase in its monthly recurring revenue to $2.4 million.
Paragon Care Ltd (ASX: PGC)
Paragon Care is a medical device, equipment, and product distributor which has fallen heavily this year. But with the company on course to deliver 7% growth this year and its shares changing hands at just 11x earnings, it could be worth keeping an eye on next year.
Regional Express Holdings Ltd (ASX: REX)
Regional Express is one of Australia’s leading regional airline operators. I think it could be one to watch in 2019 if oil prices remain at low levels. This could lead to a lower fuel bill and stronger margins for the company.
Volpara Health Technologies Ltd (ASX: VHT)
Volpara is a healthcare technology company that provides a breast imaging analytics and analysis software which continues to win market share in the massive U.S. market. Management is targeting a 9% share of the U.S. market in FY 2019, up from 3.2% at the end of FY 2018.
James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of ELMOSFTWRE FPO. The Motley Fool Australia owns shares of and has recommended BWX Limited and VOLPARA FPO NZ. The Motley Fool Australia has recommended ELMOSFTWRE FPO and Paragon Care 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 Scott Phillips.