3 more small-cap ASX shares with a competitive edge

Perpetual portfolio manager Nathan Hughes picks a trio of smaller listed businesses that are ready to grow into larger beasts.

| More on:
Three little kids in the classroom with their hands in the air, eager to answer a question.

Image source: Getty Images

Many ASX investors willing to take on more risk for greater returns turn to small-cap companies.

And those punters have seen handsome rewards in the past 12 months, with the S&P/ASX Small Ordinaries (ASX: XSO) gaining almost 30%.

Yes, the smaller businesses can encounter awful challenges that can sometimes even send them broke. But experts remind us that all the massive S&P/ASX 100 [XTO] (ASX: XTO) companies were once small caps. 

Earlier this week, Australian Ethical head of domestic equities Mike Murray revealed the 2 small caps he thought might grow into big dogs.

Now it’s Perpetual portfolio manager Nathan Hughes’ turn. Here are 3 ASX shares that he recently picked out.

ASX share that has ‘done tremendously well’

In a recent Livewire video, Hughes said he admired what retailer Premier Investments Limited (ASX: PMV) has navigated through during the COVID-19 pandemic.

“It’s a company that’s done tremendously well, rolling out Smiggle and Peter Alexander and more recently it’s had a lot of success online with huge scope for continued growth there,” he said.

“That’s both in taking those brands into additional markets and continuing to grow their online presence.”

After Hughes made those comments, Premier shares rocketed up 2.7% on Thursday after the company revealed its 2021 financial year results.

Indeed, pyjama retailer Peter Alexander showed off $100 million in sales growth over the year.

Premier shares are climbing in morning trade today, up 2.71% at $28.38 apiece. This marks an increase of 18.15% for the year.

Lighting up your portfolio

Beacon Lighting Group Ltd (ASX: BLX) is another small-cap retailer that has impressed Hughes.

The business has benefitted from “changing consumer spending patterns” since the pandemic arrived, he said in a Livewire video published this morning.

But growth from here on will come from several other factors.

“There’s [the] continued rollout of their existing store network. There’s direct to consumer online – so they’re going to new markets globally, which is really in its infancy,” said Hughes.

“And they’re also using their existing relationships here in the existing store network to penetrate into the trade channel.”

Beacon predicts that trade business could become as large as its retail channel within the next 5 years, according to Hughes.

“I think that’s a really big opportunity. The company has grown revenues at about 10% per annum compound since listing, and we think there’s a long runway for growth ahead.”

Beacon shares have risen more than 28.57% this year, sitting at $2.16 apiece at the time of writing.

‘Matured’ but ‘long runway of growth ahead’

Holding shares in mining companies can be a roller-coaster experience.

But Hughes likes the look of Adelaide’s OZ Minerals Limited (ASX: OZL), whose shares have risen 20.66% this year.

“I think it’s matured as a company; it still has a long runway of growth ahead of it,” he said of the copper and gold producer.

“The Carrapateena project has been built to be expandable and scalable, and there’s also some further upside from the West Musgrave Project that we think the stock will deliver.”

Wondering where you should 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 could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of August 16th 2021

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Premier Investments Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Small Cap Shares