If you're looking for strong returns in 2020, then I think it could be worth gaining a little exposure to the small cap side of the market.
At this side of the market there are a number of companies that have the potential to grow materially over the next decade.
Whilst not all small cap shares will live up to their potential, I feel the three listed below have a good chance of fulfilling their promise. Here's why I would invest $1,000 into each of them:
ELMO Software Ltd (ASX: ELO)
ELMO is a cloud-based human resources and payroll software company. It provides users with a unified platform that streamlines processes for employee administration, recruitment, on-boarding, learning, performance, remuneration, compliance training and payroll. Its platform has been growing in popularity over the last few years, leading to very strong sales and earnings growth. The good news is that it still has a massive addressable opportunity in the ANZ market and the potential to expand internationally. Another positive is that it has been performing very positively during the pandemic.
Volpara Health Technologies Ltd (ASX: VHT)
Volpara is a fast-growing provider of software that uses artificial intelligence imaging algorithms to assist with the early detection of breast and lung cancer. Thanks to the quality of its software and the way it is resonating with radiologists across North America, the company has been growing its market share at a rapid rate in recent years. This has continued in FY 2020 with Volpara's software products now contracted to ~27.1% of US women who undergo screening and have at least one product applied on their images and data. This led to the company reporting a massive 172% increase in annual recurring revenue in FY 2020 to NZ$18 million.
Whispir (ASX: WSP)
Whispir is a software-as-a-service communications workflow platform provider. It has been growing very strongly since its listing on the ASX thanks partly to the increasing demand it has been experiencing in the United States. A wide range of blue chips, such as entertainment giant Disney, are using its platform. This led to Whispir's revenue growing 24% in the key market in FY 2019. Pleasingly, Whispir has continued its positive form in FY 2020. Last month it revealed a 10.4% quarter on quarter jump in Annualised Recurring Revenue to $40.5 million. This was driven by record quarterly growth of 49 net new customers and increased platform use by existing customers.
