If your portfolio doesn’t have exposure to the small side of the market, I think it would be well worth considering adding one or two small cap shares to it if your risk profile allows.
After all, you only need to look at Altium Limited (ASX: ALU) to see how successful a small cap investment can be.
Over the last 10 years Altium’s shares have generated an average annual total return of 64.4%. This would have turned a solitary $2,000 investment into $290,000.
While not all small cap shares will live up to their potential like Altium has, there are a few which I believe have a good chance of doing so.
Three small cap ASX shares I think are worth looking at are listed below:
LiveTiles Ltd (ASX: LVT)
One small cap ASX share to watch is LiveTiles. It is a digital workplace platform provider aiming to simplify processes and enhance productivity. It achieves this through the creation of internal dashboards, intranet portals, and collaborative online working environments. The company has close ties with tech giant Microsoft and is aiming to leverage this to grow its annualised recurring revenue (ARR) materially over the coming years. LiveTiles aims to grow its ARR organically to $100 million by June 2021. This compares to the ARR of $42.9 million it recorded at the end of the first quarter of FY 2020.
Paradigm Biopharmaceuticals Ltd (ASX: PAR)
Another small cap ASX share to watch is Paradigm Biopharmaceuticals. It is an exciting biopharmaceutical company which is aiming to repurpose Pentosan Polysulfate Sodium (PPS) to treat osteoarthritis. The trial results of its drug, ZILOSUL, have been very promising thus far, which is a big positive. After all, management estimates that its target market is worth as much as US$27.9 billion per annum in the United States alone. Another positive is that the company has a very strong balance sheet. I believe its cash balance will be enough to see Paradigm through to a commercial launch of ZILOSUL, if future trials go to plan.
Serko Ltd (ASX: SKO)
Serko is an online travel booking and expense management provider which I think has a lot of potential. It was a very strong performer in FY 2019 thanks to strong demand from new and existing customers. This led to it posting a solid 28% increase in total operating revenue to NZ$23.4 million. Pleasingly, this strong form has continued in FY 2020, which puts Serko on track to achieve its operating revenue growth guidance of 20% to 40%. The good news is that I’m confident it can continue growing its operating revenue at a strong rate for many years to come. Especially given its sizeable global market opportunity, quality products, and partnership with industry giant Booking.com.
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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 Serko Ltd. The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended LIVETILES FPO and Serko 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.