Expert reveals 2 small-cap ASX shares for the jobs boom

Could these 2 ASX shares break through ahead of the pack?

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Key points

  • As employment nears full capacity, there are implications for companies and investors alike
  • One expert covers two shares that are potential winners in the current jobs market
  • Both companies offer CV checking services

The past two years have been nothing short of a phenomenon. Amid COVID-19, inflationary pressures, supply chain issues, threats of interest rate hikes – and, now, geopolitical conflict in Europe – Australia's economy still looks as if it will grow in the coming years.

The unemployment rate is hovering around 4%, its lowest point in more than 10 years, and if it reaches below 3%, we could be heading for the lowest levels of unemployment on record.

Australian wages have grown over the past 10-plus years, outpacing the increase in Australian labour costs and the producer price index in that time (as shown below).

But now, with the labour force heading towards full capacity, how will this impact company earnings moving forward? And how can investors navigate the predicted 'jobs boom'? Let's take a look at two potential winners below.

TradingView Chart

Xref Limited (ASX: XF1)

Having peaked at 52-week highs of 80 cents in January, shares in software-as-a-service player Xref have since corrected to trade at 59 cents apiece.

Xref claims to automate the employment reference checking process, offering a 24-hour turnaround service. According to the author of the Switzer Report, Tony Featherstone, Xref could be a buy for those investors with a longer-term horizon in mind.

"In a January trading update, Xref said sales of $10 million in the first half of FY22 were up 96% on the same period a year earlier," he said.

"That is a good result: the first half of the financial year is usually the weakest for Xref due to financial year-end."

Featherstone notes that Xreft could be one for the long-term.

"My interest is longer-term. I like Xref's technology, platform and business model. It's a globally scalable model that solves an obvious problem for customers," Feathorstone noted.

"The challenge is attracting companies and cross-selling other products so that the platform has higher margins and more 'touchpoints' with customers who find it harder to leave."

CV Check Limited (ASX: CV1)

Another potential 'jobs boom' play, according to Featherstone, is CV Check, the provider of pre-employment screening services for individuals and companies.

The company has expertise in providing a 12-24 hour turnaround on police checks. It recognised  $6.5 million in revenue for the second quarter of FY22 – a gain of 83% on the same period last year.

"Like Xref, CV Check has rising revenue growth, off a low base," Featherstone remarked. "Its products are well placed for this market and it has a reasonably large retail and SME [small to medium enterprise] customer base for its size."

According to Featherstone, the jobs market might be under-appreciating how valuable CV Check's offering is, especially given the digitising of onboarding processes.

"I doubt enough job candidates realise how technology algorithms are cross-checking their CV against published data – and the risks of providing false job information," he added.

However, CV Check has underperformed the market substantially in the last 12 months. It is down 26% this year to date, well behind the major indices.

It is now trading at 11.5 cents per share at the time of writing, having collapsed another 4% during last week's trading.

As for his favourite, Featherstone is crystal clear on which of the two companyies he prefers.

"Of the two stocks, I prefer Xref," he said. "I like emerging software-as-a-service companies that demonstrate they can rapidly scale their opportunity by adding more products and services for global markets."

"It's early days, but Xref is making good progress."

Featherstone believes CV Check hasn't done enough since listing. "Recent signs are promising…[b]ut if resume and reference checkers can't do well in this jobs market, they never will," he added.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Xref Limited. The Motley Fool Australia has recommended CV Check Ltd and Xref 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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