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2 small cap ASX shares to watch closely

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At the small end of the Australian share market, there are a number of companies with the potential to grow materially in the future.

Two that investors might want to get better acquainted with are listed below. Here’s what you need to know about them:

MyDeal.com.au Limited (ASX: MYD)

The first small cap ASX share to look at is MyDeal.com.au. It is an online retail marketplace with a focus on homewares, furniture, and technology.

As with many ecommerce companies, MyDeal has been growing very strongly during the pandemic. For example, last month it released its half year results and revealed a 217% increase in gross sales to $126.7 million. Underpinning this growth was increased repeat purchasing and a jump in active customers to 813,764.

Positively, MyDeal appears well placed to continue this positive form over the next decade thanks to the ongoing shift to online shopping and its growing its private label business.

Interestingly, despite its strong form since its listing late last year, the MyDeal share price is now trading below its IPO price of $1.00. Morgans appears to see this as a buying opportunity. Last month it put an add rating and $1.70 price target on its shares.

Nitro Software Ltd (ASX: NTO)

Another growing small cap ASX share to watch is Nitro. It is the document productivity software company behind the popular Nitro Productivity Suite.

The Nitro Productivity Suite solution provides users with integrated PDF productivity and electronic signature tools via a software-as-a-service and desktop-based software solution. This is proving to be a very popular solution for businesses great and small. Nitro notes that it has customers as large as Barclays and IBM and as small as sole traders.

Strong demand for the Nitro Productivity Suite solution led to the company reporting a 64% increase in annualised recurring revenue (ARR) to $27.7 million in FY 2020. Pleasingly, similarly strong growth is expected in FY 2021. Last month management advised that it expects its ARR to be in the range of $39 million to $42 million this year. This represents year on year growth of 41% to 51.6%.

One broker that is a fan of Nitro is Morgan Stanley. Earlier this month the broker retained its overweight rating and lifted the price target on its shares to $3.70

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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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