Due to the outsized returns that they can provide, I think having a little exposure to the small cap side of the market can be a good thing for a portfolio if your risk profile allows it.
While I think it would be best to steer clear of highly speculative shares, I feel the ASX offers a good number of exciting small caps that investors can sink their teeth into right away. These include:
Audinate Group Limited (ASX: AD8)
Audinate is a digital audio-visual networking technologies provider. It has been an impressive performer over the last couple of years thanks to the success of its award-winning Dante audio over IP networking solution. Dante is used extensively across the professional live sound, commercial installation, broadcast, public address, and recording industries globally. Due to its industry-leading position and sizeable market opportunity, I believe it still has a significant runway for growth.
Baby Bunting Group Ltd (ASX: BBN)
Baby Bunting is Australia’s leading baby products retailer. Last year the company became a victim of its own success when the closure of a large number of its competitors led to heightened clearance activities in the industry. The good news is that these competitors are now long gone and Baby Bunting is benefiting from the reduced competition and stronger buying power. So much so, the company posted a 28% increase in net profit after tax to $5.2 million during the first half and looks set to report a strong full year result in August.
ELMO Software Ltd (ASX: ELO)
ELMO is a cloud-based human resources and payroll software company. Its platform provides businesses with a way to streamline processes for numerous items including employee administration, recruitment, on-boarding, training, performance, remuneration, and payroll. Due to the growing popularity of its platform, last week ELMO reported an impressive 60% increase in full year cash receipts to $45.1 million.
And here is another exciting small cap share with enormous growth potential.
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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 and recommends Elmo Software. The Motley Fool Australia owns shares of and has recommended AUDINATEGL FPO. The Motley Fool Australia has recommended Elmo Software. 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.