There's a handful of small cap ASX shares that have very high growth potential.
That doesn't mean that large market cap ASX shares can't generate good returns too – just look at CSL Limited (ASX: CSL) over the last decade – but small businesses are starting from a much smaller base and may be able to deliver more compound returns over the next five or ten years as plans turn into fruition.
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Volpara Health Technologies Ltd (ASX: VHT)
Volpara is a healthcare software business that was founded in 2009. Its software is used by screening clinics to provide feedback on breast density, compression, dose and quality, while its enterprise-wise practice-management software helps with productivity, compliance, reimbursement and patient tracking.
It wants to increase its average revenue per user (ARPU) and market share over time. It is doing this through acquisitions and with organic growth. The acquisition of CRA Health could accelerate growth because of its higher ARPU and its integration with major electronic health record and genetics companies. Volpara recently won its biggest contract thanks to CRA Health.
On Thursday, the small cap ASX share announced some positive news from Europe. Its DENSE trial, based in the Netherlands, started collecting patients data 10 years ago and is the first randomised controlled study on the clinical utility of breast MRI supplemental screening for women with extremely dense breasts. The study used VolparaDensity software to assess breast density.
The first results from DENSE, released in December 2019, showed a significant reduction in interval cancers in those women being selected for breast MRI using VolparaDensity, but with a relatively high false-positive rate.
The results released this week, involving more than 3,000 women, show that the false-positive rate has been significantly reduced. Though the incidental cancer detection rate was lower than that of the first round, the false-positive rate was only 26.3 versus 79.8 per 1,000 screening examinations.
The Volpara CEO said that this makes the new protocols much more viable and that there's a real benefit to women.
Bubs Australia Ltd (ASX: BUB)
Bubs has been through some tough times over the last six to nine months due to COVID-19, however, it's now reporting that it's going through a recovery.
The infant formula small cap ASX share said that it's now the number one goat formula brand in Chemist Warehouse and the number two in Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW) supermarkets. Combined retail scan sales grew by 55% at the checkout at Coles, Woolworths and Chemist Warehouse in the first half of FY21.
In that result, Bubs goat infant formula gross revenue direct to China increased by 36%, partly offsetting the large disruption to the outbound daigou channel (with revenue down 57% here).
One of the main areas where Bubs sees major potential growth is export markets outside of China. In the first six months of FY21, non-Chinese export revenue went up 44%, with sales momentum expected to continue across new South East Asian markets.
The company has been working on other initiatives to grow its business over the next 12 months and beyond. For example, it has selected YP Corporation to be its nominated distribution partner for South Korea, which is a US$431 million infant formula market. YP serves all major e-commerce channels along with mother and baby stores, department stores and hypermarkets.
Bubs executive Chair Dennis Lin said:
We can say that we expect to achieve modest half on half gross revenue growth in the second half of FY21. We are confident we are well placed with strong foundations, brand share growth and a robust balance sheet to go forward with a sustainable and profitable expansion strategy to emerge as a leader challenger brand once the crisis subsides and market dynamics stabilise.
