Motley Fool Australia

3 exciting small cap ASX shares rated as buys

ASX Small Caps

In this article are three small cap ASX shares rated as buys.

Each of the below businesses have a market capitalisation under $750 million:

Audinate Group Ltd (ASX: AD8)

Audinate is a business that has a market capitalisation of $545 million according to the ASX.

It’s a business that provides the Dante platform, which distributes audio and video signals across computer networks. It boasts of being the leading supplier of digital audio and video networking for the professional AV industry.

In Audinate’s recent FY21 first quarter trading update, it said that it has seen a steady improvement in trading conditions since May. Customer and market segments have been impacted differently. There is “good momentum” in corporate conferencing and higher education, however there are still challenging conditions in live sound and large events because of COVID-19 impacts.

In the first quarter of FY21 it generated revenue of US$5.2 million. It also made AU$0.3 million of earnings before interest, tax, depreciation and amortisation (EBITDA).

The small cap ASX share is liked by fund manager Clime Capital Ltd (ASX: CAM), which said that this update was better than expected. It said that the recent sales resilience reflect the company’s diverse customer base and industry unit volumes are expected to rise significantly in the coming years, with the company likely to capture a lot of this demand because it has an adoption rate that’s eight times higher than the nearest competitor.

Sezzle Inc (ASX: SZL)

Sezzle is an ASX-listed, US-based buy now pay later (BNPL) business. According to the ASX, it has a market capitalisation of $1.2 billion.

The company operates in a similar way to other providers. It offers an interest-free instalment plan at online stores and select in-store locations. The purchase is split into four interest-free payments over six weeks, with no fees if the customer pays on time.

In its quarterly update for the three months to 30 September 2020, its underlying merchant sales (UMS) increased by 231.5% year on year to US$228.2 million, or 21.4% quarter on quarter. This translated to merchant fees increasing by 260.6% to US$13 million, or 22.5% quarter on quarter.

Active customers rose 178.1% year on year to almost 1.8 million, whilst active merchants grew 178.3% to 20,890.

The active consumer repeat usage rose by 748 basis points year on year to 89%, this represented a 41 basis points increase quarter on quarter.

The Motley Fool Hidden Gems service still rates Sezzle as a buy as part of a well-diversified portfolio. 

Edward Vesely commented that the growth numbers from the quarter were very impressive. However, the company continues to trade at a high multiple compared to last year’s revenue. He said that whilst that multiple is steep, “if strong growth rates can be maintained, then this multiple will fall drastically. For comparison’s sake, when we recommended Sezzle just over a year ago, the company was valued at a price/revenue multiple of around 50 times. That is, strong growth has seen that multiple reduce, despite a more than tripling of the share price.”

Healthia Ltd (ASX: HLA)

Healthia is an small cap ASX share that is an integrated group of allied health businesses which includes My FootDr (a podiatry business), Allsports Physiotherapy, Extend Rehabilitation, iOrthotics (a 3D printing orthotic devices business) and DBS Medical Supplies (a podiatry equipment business).

In FY20 the company increased its underlying revenue by 40%, its underlying EBITDA grew 47.6% and its underlying net profit grew by 22.7%. Underlying earnings per share (EPS) went up by 19.3%.

The company started paying dividends recently, with a final dividend of 2 cents per share. That represents a grossed-up dividend yield of 2.2%.

It continues to make acquisitions to bolster its network and increase scale. It recently announced the acquisition of an optometry business.

Healthia is currently rated as a buy by the Motley Fool Hidden Gem service.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of February 15th 2021

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AUDINATEGL FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Sezzle Inc. The Motley Fool Australia has recommended AUDINATEGL FPO, HEALTHIA FPO, and Sezzle Inc. 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.

Related Articles…

Latest posts by Tristan Harrison (see all)