I think there are a good number of small cap shares trading on the Australian share market which have the potential to grow into mid caps or even large caps in the future.
Three small cap shares that I'm watching very closely are listed below. Here's why I think you should add them to your watchlist:
Citadel Group Ltd (ASX: CGL)
Citadel is a specialist in secure information management in complex environments. Given the importance of data security and the quality of its Citadel-IX product, I believe its software-as-a-service business has strong long-term growth potential. This side of the Citadel business grew sales by an impressive 39.1% during the first half to $16.8 million. I believe it is well-placed to deliver similarly strong growth in the second half and beyond.
Serko Ltd (ASX: SKO)
Serko is the leading online travel booking and expense management provider in the ANZ region. As of its last update, there were more than 6,000 corporate customers across Asia Pacific, North America, the UK, and Europe using its products to help manage their corporate travel programs and make sense of their corporate expenses. These include the likes of Flight Centre Travel Group Ltd (ASX: FLT), Microsoft, and Telstra Corporation Ltd (ASX: TLS). Demand has been growing strongly for its products again in FY 2019, leading to management providing full year revenue growth guidance of between 20% and 30%.
Xref Ltd (ASX: XF1)
This human resources technology company could be worth keeping a close eye on. Xref allows prospective employers to conduct pre-employment reference checks on suitable candidates via an online candidate-referencing system. It has a wide range of big name clients using its service such as Bunnings, Nearmap Ltd (ASX: NEA), Qantas Airways Limited (ASX: QAN) and Westpac Banking Corp (ASX: WBC). One particularly big positive is that it recently reported that its client acquisition costs and average revenue per account have now aligned, meaning Xref's cash flow break-even point is on the horizon.
