Investing in the small side of the share market carries more risk than other areas.
But if your tolerance for risk allows for it, having a bit of exposure to this side of the market could be a boost for a balanced portfolio. This is due to the potential returns on offer from promising small caps.
With that in mind, here are three small cap ASX shares that analysts rate highly:
Airtasker Ltd (ASX: ART)
The first small cap ASX share to consider is Airtasker. It is growing online marketplace for local services with an estimated total addressable market of $600 billion across Australia, the UK, and the US. Morgans is very positive on Airtasker's outlook due to this significant market opportunity and its attractive business model. Its analysts also highlight that this is a market that is in the early stages of ecommerce adoption, which puts Airtasker in a great position to benefit as the shift accelerates. Morgans has an add rating and $1.25 price target on the company's shares.
Elmo Software Ltd (ASX: ELO)
Another small cap to watch is ELMO. It is a cloud-based human resources and payroll software company that provides a unified platform to streamline processes. It has been growing at a strong rate in recent years and has continued this impressive form in FY 2022. During the first half, Elmo grew its annualised recurring revenue (ARR) by 35% since the end of June to $98.3 million. This reflects strong trading conditions due to the increased adoption of cloud-software solutions by businesses to manage remote or hybrid workforces. Morgan Stanley is positive on the company and has an overweight rating and $7.80 price target on its shares.
PlaySide Studios Limited (ASX: PLY)
A final small cap ASX share to watch is PlaySide Studios. It is one of the largest video game developers in the ANZ region. It has developed a portfolio of games independently and in collaboration with studios such as Disney, Pixar, Warner Bros, and Nickelodeon. But it won't stop there. The company has recently announced work for hire deals with games publishing giants 2K Games and Activision Blizzard. This could see the company work on some major titles for these gaming giants, which could give its reputation a huge boost. Canaccord Genuity is a fan of PlaySide. It currently has a buy rating and $1.30 price target its shares.
