If you’re interested in adding some exposure to the small side of the market to your portfolio then you might want to take a look at the shares listed below.
Here’s why these ASX small caps have been tipped as buys:
Bigtincan Holdings Ltd (ASX: BTH)
The first small cap ASX share to look at is Bigtincan. It is an artificial intelligence-powered sales enablement automation platform provider. The company’s platform is being used by a growing number of blue chips, this includes 7 of the top 10 companies on the Fortune 500.
Last month Bigtincan released its second quarter update and revealed strong recurring revenue growth once again. According to the release, the company’s annualised recurring revenue (ARR) reached $48.4 million at the end of December. This represents an increase of 50% over the prior corresponding period.
Pleasingly, although the company has made some acquisitions, the majority of its growth was organic. Management advised that organic ARR came in at $40 million, which was up 42.9% on the prior corresponding period. ARR from acquisitions totalled $8.4 million.
Analysts at Morgan Stanley were impressed with its update. They initiated coverage on the company’s shares with an overweight rating and $1.40 price target. The broker believes the company is well-positioned for growth thanks to its leadership position in a growing market.
Universal Store Holdings Limited (ASX: UNI)
Another small cap ASX share to look at is Universal Store. It is a leading fashion retailer with a strategy of delivering a frequently changing and carefully curated selection of on-trend products to a target 16-35 year old fashion focused customer.
As with Bigtincan, it recently released a trading update which revealed very strong growth so far in FY 2021.
According to the release, Universal Store expects its underlying earnings before interest and tax (EBIT) to be in a range of $30 million to $31 million for the first half. This represents growth of between 61% and 67% on the prior corresponding period. This was driven by strong like for like sales growth and gross margin improvements.
This update went down well with Morgans. In response to the update, the broker put an add rating and $6.93 price target on its shares. It believes Universal Store is well-placed to grow its earnings at a 30% compound annual growth rate through to FY 2023.
Where to invest $1,000 right now
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*Returns as of February 15th 2021
James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends BIGTINCAN FPO. The Motley Fool Australia owns shares of and has recommended BIGTINCAN FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.