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2 buy-rated small cap ASX shares to watch

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If you’re looking to gain exposure to the small side of the market, then you might want to take a look at the small cap ASX shares listed below. 

Here’s why these small cap ASX shares could be ones to buy:

Nitro Software Ltd (ASX: NTO)

The first small cap ASX share to look at is Nitro Software. It is the software company responsible for the increasingly popular Nitro Productivity Suite.

This software solution provides integrated PDF productivity, eSignature, and business intelligence (BI) tools to a growing number of customers globally. In fact, at the end of the fourth quarter, Nitro was serving a total of 11,700 business customers. This includes individual users, small businesses, government agencies, and large multinational enterprises. In respect to the latter, Nitro counts over two-thirds of the Fortune 500 as customers.

That fourth quarter update also revealed that its annualised recurring revenue (ARR) has been growing strongly. It reached US$27.7 million at the end of December. This was up an impressive 64% on the prior corresponding period and ahead of its upgraded guidance.

Analysts at Morgan Stanley were very happy with its update. In response to it, the broker put an overweight rating and $3.50 price target on its shares.

Universal Store Holdings Limited (ASX: UNI)

Another small cap ASX share to consider is this growing fashion retailer. Universal Store has 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.

This strategy has been working wonders for the company and is underpinning stellar earnings growth in FY 2021. Universal Store recently revealed that it 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. Management advised that this was driven by very strong like for like sales growth and margin expansion.

Morgans was very pleased with the update. So much so, the broker put an add rating and $6.93 price target on its shares. Positively, its analysts don’t believe Universal Store’s growth will end here. They believe it can grow its earnings at a 30% compound annual growth rate through to FY 2023.

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

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends BIGTINCAN FPO. The Motley Fool Australia has recommended BIGTINCAN FPO and Nitro Software Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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