It wasn't that long ago that Afterpay Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P) were small cap shares and largely unknown to the average investor.
Today they are multi-billion dollar companies and among the most popular shares on the S&P/ASX 200 Index (ASX: XJO).
Anyone that picked up shares when they were still small caps will have generated mouth-watering returns.
I think this demonstrates why a little exposure to the small side of the market can be a good thing for a portfolio.
But which small cap shares should you be looking at? Three small caps that I think have a lot of potential are listed below:
Bigtincan Holdings Ltd (ASX: BTH)
The first small cap to watch is Bigtincan. It is a provider of enterprise mobility software. This increasingly popular software allows sales and service organisations to increase sales win rates, reduce expenditures, and improve customer satisfaction through improved mobile worker productivity. It has a large number of blue chips using its software. This includes banking giant Australia and New Zealand Banking GrpLtd (ASX: ANZ), Nike, and Sephora.
Clover Corporation Limited (ASX: CLV)
Clover is a specialist ingredients producer that manufactures ingredients such as the highly sought-after omega-3 oils that go into infant formula, supplements, and baby food products. It has been growing at a strong rate over the last few years thanks largely to the increasing demand for ingredients from infant formula market. While uncertain trading conditions could bring this positive run to an end in FY 2021, I believe this is only a short term headwind and its growth will accelerate again once the conditions ease.
Volpara Health Technologies Ltd (ASX: VHT)
A final small cap to watch is Volpara. It is a Software-As-A-Service (SaaS) company that uses algorithms and artificial intelligence to improve the early detection of breast cancer. It achieves this by analysing mammograms and associated patient data. After which, the software is able to provide clinical decision support and practice management tools in a cost-effective way. The company is currently generating NZ$19.1 million in annual recurring revenues (ARR) but estimates that it has a US$750 million ARR opportunity in breast cancer screening.
