3 ASX small cap shares landing on an expert’s buy list

The market is falling, but these 3 small-cap names have been labelled a buying opportunity…

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Key points

  • The ASX 200 has officially entered correction territory as the market dives further on Thursday
  • Small-cap ASX shares have performed poorly compared to the benchmark
  • One fund manager picks out three small-cap companies that could be worth a look

The S&P/ASX 200 Index (ASX: XJO) has officially entered a correction on Thursday. This is defined as a fall of more than 10%. Unfortunately, ASX small-cap shares have been experiencing intensified selling pressure compared to their larger peers.

To illustrate this, the S&P/ASX Small Ordinaries Index (ASX: XSO) is now down 14.4% since the beginning of the year.

Despite this, one portfolio manager has ventured off into the storm, looking for shares that could be a buy. From this, we’ve come away with three small-cap ASX shares that might be worth a look.

Let’s take a look at which companies make the list for QVG Capital fund manager, Josh Clark.

Could this ASX share pull a 180?

It may be down 46% from its 52-week high, but that hasn’t deterred Clark from Life360 Inc (ASX: 360). In his recent interview with Livewire, the fundie outlined his case for why the family-centred technology company is a buy.

In Clark’s eyes, the company has a few tailwinds at its disposal, providing forward momentum for the business. This has allowed Life360 to reach revenue growth in excess of 40%.

Importantly, the fund manager considers the founder-led management team to be of high quality. A key characteristic feature of the team is its ability to create value for customers. Clark goes on to say — by adding more features — churn should reduce, bringing an increase in lifetime customer value.

The Life360 share price is up 87% compared to the same time a year ago. However, the company’s valuation has been sliding since the Tile acquisition announcement.

Getting connected with another buy

Aussie Broadband Ltd (ASX: ABB) is another ASX small-cap share that has had a bad run recently. The telecommunications company has watched on as its share price has tumbled nearly 25% since 1 December 2021.

The fast-growing telecom player is now trading on a price-to-sales (P/S) ratio of roughly 2.5 times. While the industry is highly competitive in nature, Clark believes the current valuation is compelling based on the earnings expected to be coming through over the next couple of years.

As such, this small-cap has found a spot on the fund manager’s buy list. Currently, shares in Aussie Broadband are swapping hands at $4.10 a pop.

Bringing it home

The third and final ASX small-cap share making a nest in Clark’s buy list is Frontier Digital Ventures Ltd (ASX: FDV). This company holds a portfolio of online automotive and property marketplaces, predominantly scattered across underdeveloped countries.

It is worth noting that Clark is cautious that the company is trading at more than 10 times its revenue. More concerning is that those types of businesses are getting smashed in the current market selloff.

However, the fund manager is more optimistic about the company over the long term. Mainly on the basis that online classifieds have demonstrated their ability to provide remarkable returns in the past.

Take REA Group Limited (ASX: REA) and Carsales.com Ltd (ASX: CAR) for example — both of which have returned in excess of 95% over the last five years.

With an extensive portfolio of opportunities, Clark noted that only a few of these need to hit for Frontier Digital Ventures to be a winning ASX share.

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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 over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

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*Returns as of January 12th 2022

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Aussie Broadband Limited, Frontier Digital Ventures Ltd, and Life360, Inc. The Motley Fool Australia has recommended Aussie Broadband Limited, Frontier Digital Ventures Ltd, REA Group Limited, and carsales.com 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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