Bubs and 1 other exciting small cap ASX share to buy

Here we take a closer look at 2 exciting small cap ASX shares: Bubs Australia Ltd (ASX: BUB) and Bigtincan Holdings Ltd (ASX: BTH).

Phil Harpur

Phil Harpur has been contributing to Motley Fool Australia as a Freelance Writer since late 2019. Phil has spent the last 25 years working as a Senior Technology Analyst for some of the leading global technology research firms. Over the years, his market insights have been quoted in publications such as the AFR, SMH and the Australian, and he has appeared on business TV programs including Bloomberg, CNBC, Fox Business and the ABC. Phil is passionate about the share market and investing. He has post-graduate qualifications in Applied Finance and Investment from the Securities Institute of Australia. In his spare time, Phil likes to chill out listening to his favourite jazz artist or hanging out at the beach.

Published July 13, 2020 4:51 pm AEST

The ASX offers investors the opportunity to purchase a growing number of exciting small cap shares with strong growth potential.

Here we examine 2 of my top small cap ASX share picks right now: Bubs Australia Ltd (ASX: BUB) and Bigtincan Holdings Ltd (ASX: BTH).

It's important to keep in mind that small cap ASX shares can experience high share price volatility over the short term. It is therefore advisable only to purchase them as part of a diversified share portfolio.

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Bubs

Goat milk producer Bubs has established a very strong position in the Australian market. It has become Australia's only vertically integrated producer of goat milk formula, and has been a star performer in terms of revenue growth throughout the coronavirus pandemic.

Bubs delivered a massive 67% increase in revenue to $19.7 million during Q3 FY20 to 31 March 2020, compared to the prior corresponding period. In addition, sales have now pleasingly risen to a point where Bubs is generating positive operating cashflow. This is a significant milestone for a small cap ASX share.

Bubs has now shifted its focus to the massive Asian market – a strategy that is already starting to see results. The company's Chinese revenues soared 104% higher in the third quarter of FY 2020. Infant formula scandals in China have seen a preference for Australian made products, due to the perception of higher safety and higher quality. In addition, the rising demand for Chinese e-commerce platforms such as JD.com and Alibaba's TMall is enabling a large and growing number of buyers and sellers to connect with each other.

I believe that Bubs' Asian growth strategy positions the company well for strong growth over the next 2 to 3 years.

Bigtincan

Small cap technology ASX share Bigtincan operates in an IT software niche commonly referred to as 'sales enablement'.

Bigtincan's financial performance continues to be strong. It posted annualised recurring revenue (ARR) of $32.4 million for the first half of FY20, which was a massive 55% increase on the prior corresponding period. Bigtincan also reported a 2% increase in its customer retention rate to 89%.

The Bigtincan share price was hit hard in the early phase of the coronavirus pandemic, up until late March. It fell by more than 70% during that time. Since then, Bigtincan has regained over two-thirds of those share price losses, and is currently trading at $0.83.

Bigtincan continues to win new deals in its quest for further expansion of its customer base. Earlier this month, Bigtincan announced the signing of a major new customer contract with global beverage giant Red Bull.

Despite not yet becoming cash flow positive, I am optimistic about Bigtincan's long-term future, driven by the fast-growing sales enablement market.

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