The ASX small-cap space could contain some of the market's next blue chips.
It's far easier for a business to double in size from $500 million to $1 billion than it is for a company to grow from $50 billion to $100 billion.
I think that smaller ASX shares have a longer growth runway and, therefore, can produce stronger returns over time.
But I only want to consider ideas that are already producing good revenue. I'm not thinking about high-risk biotech names or other similar sorts of categories. So, with that in mind, these are four of my favourite ideas for long-term growth which could help build a portfolio worth $1 million.
Airtasker Ltd (ASX: ART)
Airtasker is a small-cap ASX tech share that provides a platform for people to advertise for free the service they are seeking. Taskers can then offer to do the work — and outline their fees. The type of tasks involved can be almost anything – delivery services, photography, furniture assembly, removals, various handyperson jobs, and so on.
The business is already producing positive earnings before interest, tax, depreciation and amortisation (EBITDA) in Australia. It's also rapidly growing in the US and the UK too, which are two huge markets.
Airtasker has a very high gross profit margin, which means it's able to invest a lot of its new revenue back into growth expenditures such as marketing.
Certainly, the company is already showing a desire for geographical expansion. As such, I believe it has a long growth runway with other countries it can expand into, such as Canada and New Zealand.
Volpara Health Technologies Ltd (ASX: VHT)
I think Volpara is one of the most exciting small-cap ASX healthcare shares. It has AI-powered image analysis that enables advanced breast screening, helps healthcare professionals better understand the cancer risk of patients, and enables healthcare providers to streamline work and improve performance.
The business recently announced that in the three months to December 2022, it achieved positive operating cash flow after a 42% increase in cash receipts in constant currency terms.
It continues to grow its annual recurring revenue (ARR) while decreasing its cost base, boosting profitability.
If it can keep selling more of its services to its existing (and growing) customer base, then the average revenue per user (ARPU) will keep improving and this should further boost profit margins.
I think the small-cap ASX share has a very promising future, particularly if it can get a good foothold in Europe.
Healthia Ltd (ASX: HLA)
Healthia is an allied healthcare business. It's involved in a number of areas including networks of optometry, podiatry, and physiotherapy clinics.
I think this is quite a defensive sector, so its earnings could perform adequately in the period ahead.
The Healthia share price has dropped 40% over the past year, making it much better value. With the Australian population rising, and becoming older, I think there are useful tailwinds for the business.
If it can keep acquiring additional clinics and improve the performance of its existing network, I believe the business is on course for a good future.
I think it looks very reasonably priced, trading at 12 times FY23's estimated earnings, according to Commsec.
Temple & Webster Group Ltd (ASX: TPW)
Temple & Webster is another small cap ASX share that I believe has plenty of potential.
It's an online retailer of homewares and furniture which has more than 200,000 products on sale.
A lot of the products sold are from third-party suppliers, which are shipped straight to customers. This cuts shipping times, reduces the need for Temple & Webster to hold inventory, and makes that part of the business quite capital-light.
But the company also has a growing selection of private-label products.
If Australia follows the e-commerce trend of the UK then, in the coming years, the company's online share of the market could rise from mid-teens in Australia to a percentage in the high 20s, according to Temple & Webster.
The business is heavily investing in technology, such as an AI interior design service, and an augmented reality (AR) service which enables people to visualise products in their home space.
With its high level of reinvestment, I think the company can benefit from growing scale and achieve attractive margins in time.
The expansion into the home improvement categories (like painting, plumbing, and flooring) also gives the small-cap ASX share a very large addressable market to aim for.
