It’s very tempting to invest in the big players because of their perceived safety. However, if you’re wanting to achieve significant share price appreciation, it could be more beneficial to look to the ASX small cap shares. In addition, because of their potential for above-market growth, small cap shares could (over the long term) increase their dividends to the point you could make significant income as well.
Once upon a time, the big caps were small caps, after all.
As a result, I believe the following 3 ASX small cap shares could reward investors now and over the long-term.
Baby Bunting Group Ltd (ASX: BBN)
Baby Bunting stores can remain open in Melbourne’s stage 4 restrictions, as the group is a retailer of maternity supplies and classed as an essential service. As a result, I believe it could be the beneficiary of more demand.
Commenting on the lockdown, CEO and Managing Director Mat Spencer said: “With over 9,000 new babies due in Victoria during the lockdown period, new and expectant parents face many critical and specialised needs and our Melbourne stores remain open to provide the essential products and services for them.”
Additionally, the company is scheduled to release its FY20 accounts tomorrow. On 22 July 2020, Baby Bunting released a FY20 financial results update. In the update, the group indicated it expects proforma earnings before interest, taxation, depreciation and amortisation (EBITDA) of between $33 million and $34 million. This is growth of between 22% and 25% on FY19 EBITDA result. However, the result is subject to audit and excludes the non-cash impact of other expenses.
I have been impressed by the continued growth in sales (in-store and online) and expected gross margin increase of 36.2% which is an increase of 120 basis points against the prior corresponding period.
In the past year, the Baby Bunting share price has rallied 66.23% higher.
Catapult Group International Ltd (ASX: CAT)
Catapult has been kicking goals recently by reaching positive cash flow a year early of $9 million in FY20. This is an improvement of $24.1 million on FY19.
Its EBITDA is expected to be between $11.5 million and $12.5 million. Additionally, total revenue is expected to between $100 million and $101 million. This is assisted by its subscription-based model.
Catapult has also recently been awarded a video exchange contract with the top 130 US college football teams. The partnership will open several new commercial opportunities in the market. I believe Catapult can continue growing as it continues to sign new sporting leagues and clubs around the world.
The Catapult share price has increased 42.98% in the past year.
Marley Spoon AG (ASX: MMM)
A structural change in how people buy groceries now and into the future could see continued rapid share price growth for this ASX small cap share.
In its Q2 2020 market release, Marley Spoon’s highlights included an acceleration in the long-term adoption of online grocery shopping, retention of new customers and decline in acquisition costs, growth in revenue, global contribution margin and positive global EBITDA. It also upgraded its 2020 full year guidance to 70% revenue growth from approximately 30%.
I believe this trend will continue, post-pandemic, as people become accustomed to buying their groceries online. The Marley Spoon share price has soared a whopping 479.44% in the past year.
Matthew Donald owns shares of Baby Bunting. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Catapult Group International Ltd. The Motley Fool Australia has recommended Catapult Group International 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.
- Why the BNK Banking share price jumped 14% today – August 28, 2020 4:57pm
- Marley Spoon share price on watch after upgrading revenue guidance – August 27, 2020 5:34pm
- Mach7 Technologies share price is up 5% on first full year profit result – August 27, 2020 3:33pm