I think that having a little bit of exposure to the small side of the market can be a positive for a portfolio.
This is because even blue chip companies such as Ramsay Health Care Limited (ASX: RHC) were small caps at one stage.
Anyone that bought Ramsay's shares in the early days and held onto them will have generated exceptionally strong returns.
And although not all small caps will be success stories, there are a few that I feel have a good chance of going onto bigger and better things.
Three small ASX cap shares worth watching very closely are as follows:
Audinate Group Limited (ASX: AD8)
Audinate is a digital audio-visual networking technologies provider. It has achieved very strong sales growth in recent years thanks to the increasing demand for its Dante product. This award-winning audio over IP networking solution is being used widely across the professional live sound, commercial installation, broadcast, and recording industries globally. While the pandemic will inevitably impact its sales greatly, I believe its growth will accelerate once the crisis passes.
ELMO Software Ltd (ASX: ELO)
ELMO Software is a fast-growing cloud-based human resources and payroll software company. It provides a unified platform that allows users to streamline processes for employee administration, recruitment, on-boarding, learning, performance, remuneration, compliance training and payroll. It has been a strong performer over the last few years and I expect more of the same in FY 2020 and beyond. ELMO recently released its third quarter update and revealed quarterly cash receipts of $13.3 million. This was up an impressive 39.4% on the prior corresponding period. It brought its 12-month trailing cash receipts to $56.2 million, up 42.3% on the 12 months to March 2019.
Volpara Health Technologies Ltd (ASX: VHT)
A third small cap share to look at is Volpara Health Technologies. It is a provider of healthcare software that leverages artificial intelligence imaging algorithms to assist with the early detection of breast and lung cancer. It has been growing at a very strong rate over the last few years thanks to its increasing market share in North America. And due to the growing popularity of its software with radiologists and recent acquisitions, I expect this positive form to continue for the foreseeable future.
