If you're looking for strong returns in the 2020s, then I think having a little exposure to the small cap side of the market could be a good thing.
At this side of the market there are a number of companies that have the potential to grow materially over the next decade.
While it is worth remembering that not all small cap shares will live up to their potential, I feel the two listed below have a good chance of doing so. Here's why I think they could have bright futures:
ELMO Software Ltd (ASX: ELO)
ELMO Software is a fast-growing provider of cloud-based human resources and payroll software. Its increasingly popular unified platform allows users to streamline processes for everything from employee administration, recruitment, and payroll. Demand for its offering has continued to grow in FY 2020, with management recently providing full year guidance for annualised recurring revenue (ARR) of $55 million to $57 million. This represents an increase of 20% to 24% on the prior corresponding period. The good news is that its current ARR is only scratching at the surface of its total addressable market in the ANZ region. This means it still has a significant runway for growth in the local market and also the opportunity to expand into other key markets in the future.
Mach7 Technologies Ltd (ASX: M7T).
Mach7 is a medical imaging data management solutions provider for healthcare organisations. Its solutions create a clear and complete view of the patient to inform diagnosis, reduce care delivery delays and costs, and improve patient outcomes. Demand for Mach7's offering has been growing strongly in recent times, leading to the company delivering a 158% increase in revenue to $9.1 million during the first half. I'm confident there will be more strong growth in the years to come, especially after its recent acquisition of Client Outlook. The addition of this leading provider of an enterprise image viewing technology increases Mach7's total addressable market from US$0.75 billion to US$2.75 billion.
