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2 buy-rated small cap ASX shares with strong growth potential

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Are you a fan of small cap shares like I am? If you are, then you might want to look closely at two that are listed below.

Here’s what you need to know about them: Limited (ASX: MYD)

The first small cap ASX share to look at is It is growing online retail marketplace with a focus on furniture, homewares, and kitchen and bathroom products.

It has been growing very strongly over the last 12 months thanks to the accelerating shift to online shopping.

For example, during the six months ended 31 December, MyDeal reported a 217% increase in gross sales to $126.7 million and a 248% jump in revenue to $21.2 million. And while its gross margin softened slightly, its gross profit still grew at the very strong rate of 210% to $18.9 million.

Management advised that this was driven by a 205% increase in active customers to 813,764 and further improvements in repeat use. In respect to the latter, a total of 52.7% of second quarter transactions came from returning customers. This is up from 38.5% a year earlier.

One broker that was pleased was Morgans. It has retained its add rating and $1.70 price target on the company’s shares.

Nitro Software Ltd (ASX: NTO)

Another small cap ASX share to look at is Nitro Software. It is a growing software company which is helping to drive digital transformation in businesses around the world across multiple industries.

The key product in the company’s offering is the Nitro Productivity Suite. This solution provides businesses with integrated PDF productivity and electronic signature tools via a software-as-a-service and desktop-based software solution.

Late last month the company released its full year results and revealed annual recurring revenue (ARR) of $27.7 million. This was up 64% year on year and ahead of its upgraded guidance range of $26 million to $27 million.

Looking ahead, another strong year is expected in FY 2021. Management revealed that it expects FY 2021 ARR to be between $39 million and $42 million. This represents year on year growth of 41% to 51.6%.

This went down well with Morgan Stanley, which retained its overweight rating and $3.50 price target.

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

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended 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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