If your risk profile allows it, having a little exposure to the small end of town could be a good thing for a portfolio.
That's because of the potentially strong returns that are on offer with small cap ASX shares.
But which ones could be buys? Two that Goldman Sachs rates as buys are listed below. Here's what it is saying about them:
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FINEOS Corporation Holdings PLC (ASX: FCL)
The first small cap ASX share to look at is Fineos, which is a provider of core systems for life, accident, and health insurance carriers globally. It has 7 of the 10 largest group life and health carriers in the US, as well as a 70% market share of group insurance in Australia.
Goldman is very positive on the company and has a buy rating and $2.40 price target on its shares. It commented:
Recent industry data points and commentary suggest that demand conditions are normalizing into 2023, with easing wage pressures increasing confidence in FCL's cash break-even trajectory (we now see upside to consensus earnings across FY23-25E). Separately, FCL's closest US comp Duck Creek was taken out for ~2-3x FCL's trading multiple, providing valuation support for the sector.
Maas Group Holdings Ltd (ASX: MGH)
Another small cap ASX share to consider buying is Maas. It is a construction material, equipment and service provider.
Goldman believes that it could be a small cap to buy and has a buy rating and $4.20 price target on its shares. The broker is positive thanks to Maas' ongoing transition, which it believes this will underpin higher quality earnings. It explained:
We believe MGH is in a transition phase and will see higher quality real estate income become the largest source of earnings in the next 3-5 years. We believe the market is mispricing how MGH's civil and construction capabilities support the property development business to deliver best-in-class margins and asset turnover. In our view the value created through the development of quality annuity revenue from Build-to-Rent (BTR), Land Lease (potentially generating a 4.5x ROIC annuity income stream) and commercial real estate projects could re-rate the stock.
