Some small cap ASX shares may be able to make good returns over the longer-term.
There are smaller businesses that have interesting characteristics, which may be of interest to some investors:
Volpara Health Technologies Ltd (ASX: VHT)
Volpara is a medical technology business. Its main service is providing software to help detect breast cancer early on by increasing the quality of screening using AI.
The small cap ASX share reported its FY21 half-year result a couple of months ago. Subscription revenue went up 71% to NZ$8.8 million, though total revenue only grew by 38% to NZ$9.5 million. Annual recurring revenue (ARR) went up from NZ$18 million to NZ$19.9 million.
One of the metrics that Volpara likes to boast about to investors is that the gross profit margin reached 92%, up from 89% in the prior corresponding period.
The company recently won two contracts. The first was a five-year software as a service (SaaS) contract with BreastScreen Queensland to use VolparaEnterprise, which could expand to include VolparaDensity and VolparaLive.
Volpara also announced that its breast health platform has been selected by US Radiology Specialists, which comprises of more than 280 radiologists, 3,100 team members and 145 outpatient imaging centres across 14 states in the US.
City Chic Collective Ltd (ASX: CCX)
City Chic is one of the small cap ASX shares in the retail space that is growing online sales at a fast rate. In FY20 online sales rose by 113.5% and this represented 65% of City Chic of total sales. Fund manager Chris Prunty from QVG Capital thinks that the e-commerce theme will continue to grow after COVID-19 has passed.
The company is made up of a variety of different retail brands. It sells plus-size clothing, footwear and accessories to women. It has a number of brands including City Chic, Avenue, CCX, Hips & Curves and Fox & Royal. City Chic has around 100 stores across Australia and New Zealand. It has websites for local and US customers, it has marketplace and wholesale partnerships with major US retailers such as Macys and Nordstrom, and a wholesale business with European and UK partners such as ASOS and Zalando.
City Chic recently acquired Evans for $41 million from Arcadia Group, which has gone into administration. Evans is a UK-based retailer of women’s plus-size clothing with a longstanding customer base and sizeable market position.
The Evans website made £23 million of sales with 19 million visits for the financial year to August 2020. The wholesale business also made £3 million of sales. The overall Evans group of businesses, including the stores and franchise, made £60 million of annual sales before COVID-19 came along. The small cap ASX share’s management are hoping it can capture some of the physical sales that Evans used to make.
According to Commsec, the City Chic share price is valued at 23x FY23’s estimated earnings.