When it comes to ASX shares, bigger doesn't necessarily mean better. Take ANZ Group Holdings Ltd (ASX: ANZ), for example. With a market capitalisation of over $73 billion, this S&P/ASX 200 Index (ASX: XJO) big-four bank has seen its share price dwindle by more than 14% over the past five years.
Of course, that's not to say stocks at the small end of town don't also carry risk of major downside. In fact, most would argue small-cap shares bring with them considerably more risk than their ASX large-cap counterparts.
But, chosen carefully, small-cap stocks also have the potential to grow significantly, delivering eye-watering gains for their investors along the way (hello, Afterpay!).
So, if you're keen to add some pint-sized companies to your investment portfolio in March, here are a few to consider. Because we asked our Foolish writers which ASX small-cap shares they reckon are worth buying right now. Here is what they said:
6 best ASX small-cap shares for March 2023 (smallest to largest)
Shaver Shop Group Ltd (ASX: SSG), $146.73 million
Duxton Water Ltd (ASX: D2O), $212.03 million
Universal Store Holdings Ltd (ASX: UNI), $411.99 million
Nick Scali Limited (ASX: NCK), $773.95 million
Nanosonics Ltd (ASX: NAN), $1.34 billion
PSC Insurance Group Ltd (ASX: PSI), $1.73 billion
(Market capitalisations as at 2pm on 8 March 2023)
Why our Foolish writers love these ASX small-cap stocks
Shaver Shop Group Ltd
What it does: Shaver Shop has more than 120 stores across Australia and New Zealand. It sells a wide range of male and female personal grooming products. The retailer aims to be the market leader in "all things related to hair removal". But it also sells items across oral care, hair care, massage, air treatment, and beauty categories.
By Tristan Harrison: I think Shaver Shop stock could be more defensive in a downturn than some investors are giving it credit for, based on its price-to-earnings (P/E) ratio.
Australian population growth should be a useful tailwind for the business, while ongoing new product launches exclusive to Shaver Shop can also drive earnings.
The business continues to expand its store network, with growth in New Zealand being a focus.
The small-cap ASX share has no debt and continues to pay a very attractive dividend.
Commsec estimates currently suggest that earnings per share (EPS) and dividends could grow each year in FY24 and FY25. The FY23 estimates put the Shaver Shop share price at 9x projected earnings with a grossed-up dividend yield of 12.7%.
Motley Fool contributor Tristan Harrison does not own shares in Shaver Shop Group Ltd.
Duxton Water Ltd
What it does: This small-cap company provides direct exposure to an unusual asset – water. Duxton manages a portfolio of more than 83.6 gigalitres of water entitlements across various regions of Australia. By owning these entitlements, Duxton can lease them out for a fee to farmers requiring flexible water arrangements.
By Mitchell Lawler: The last few years have not been optimal for water leasing.
A triple La Niña, combined with a Negative Indian Ocean Dipole, has produced years of wet conditions – reducing the demand for Duxton's portfolio of entitlements. In turn, revenue and earnings have fallen off a cliff while debt on the Duxton balance sheet has increased.
However, forecasts suggest a return to drier conditions by June this year. If this were to materialise, Duxton could soon see an uptick in the percentage of its water portfolio leased, driving increased revenue and earnings.
Lastly, the company's debt level is toward the higher end of what I'd normally be comfortable with. However, there is $114 million worth of unrealised gains on its entitlements that, theoretically, could be used if Duxton was caught in a pinch.
I personally believe this company has solid prospects for growing into a sturdy dividend payer. Currently, shareholders are getting a dividend yield of around 3.7%, with payments guided to grow over the next three halves.
Motley Fool contributor Mitchell Lawler owns shares in Duxton Water Ltd.
Universal Store Holdings Ltd
What it does: Universal Store is a specialty retailer of youth casual apparel through its Universal Store, Perfect Stranger, and Thrills brands.
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The latter is being underpinned by the expansion of the company's store network and the popularity of its brands with younger consumers, who are less impacted by rising interest rates and have continued to spend largely as normal despite the cost of living crisis.
As for its valuation and yield, Goldman Sachs is forecasting earnings per share of 39 cents and a fully franked 27 cents per share dividend in FY 2023. Based on the current Universal Store share price of $5.37, this means a forward P/E ratio of under 14x and an estimated dividend yield of 5%.
In light of this, it won't come as a surprise to learn that Goldman has a buy rating and an $8.00 price target on Universal Store shares.
Motley Fool contributor James Mickleboro does not own shares in Universal Store Holdings Ltd.
Nick Scali Limited
What it does: Nick Scali is a growing furniture retailer with a proud 60-year history. It is one of Australia's largest importers of high-quality furniture direct from manufacturers around the world.
By Bronwyn Allen: Early last month, Nick Scali released its 1H FY23 results. The highlights included a 70% increase in net profit after tax (NPAT), a 53% increase in earnings before interest, tax, depreciation, and amortisation (EBITDA), and a 14% bump to its interim dividend.
That's all pretty positive, right? Well, guess what the market did to the company's share price? Killed it. Absolutely smashed it. The Nick Scali share price has dropped by 25% since. And why? Because the company said the outlook was uncertain and it couldn't provide formal guidance for the next half.
I reckon this is a classic buy-the-dip opportunity. Investing should be for the long term, and I believe the next half – and even this current economic period – will be a blip on the radar in 10 years' time.
Nick Scali shares are currently trading on a P/E ratio of 7.35x. That's nuts! (A P/E of 15x is considered cheap.)
Australians are obsessed with property, lifestyle, and home design, so I think Nick Scali is a great stock to add to your portfolio while it's trading in the mid-$9 range.
Motley Fool contributor Bronwyn Allen owns shares in Nick Scali Limited.
Nanosonics Ltd
What it does: Nanosonics is an ASX 200 healthcare company specialising in medical disinfection in hospitals and other medical centres.
By Sebastian Bowen: Nanosonics is an exciting ASX small-cap healthcare share. The company specialises in sterilisation techniques, mostly through its flagship Trophon device. This machine delivers leading disinfectant technology for medical equipment.
Nanosonics employs a successful 'razor-and-blades' business model of supplying the Trophon device to hospitals and medical centres, but also its high-margin consumable disinfectant and maintenance services.
The company recently posted its latest half-year results. This saw revenues jump by 35% and operating profits before tax surge by a whopping 245%.
Following these numbers, ASX broker Morgans came out with an add rating on Nanosonics shares, complete with a 12-month share price target of $5.24. At the time of writing, the Nanosonics share was sitting at $4.65.
Motley Fool contributor Sebastian Bowen does not own shares in Nanosonics Ltd.
PSC Insurance Group Ltd
What it does: PSC Insurance provides diversified insurance products and services in Australia, New Zealand, Hong Kong, and the United Kingdom. The company has a portfolio of more than 40 trading businesses across its group.
By Bernd Struben: PSC Insurance has an established acquisition-for-growth strategy, which has seen it build a portfolio of businesses ranging from start-ups to mature companies. Its leadership team has a proven track record, and the company provides a vital service that's in demand in both good economic times and bad.
PSC's half-year results saw a 19% year-on-year increase in underlying EBITDA to $48.6 million. NPATA increased 27% to $35.2 million, and the dividend of 5.2 cents per share was up 16%.
Pleasingly, management upgraded full-year underlying EBITDA guidance to a range of $104-$108 million (from $101-$105 million) and an underlying NPATA range of $72-$75 million (from $70-$73 million).
The stock trades on a trailing dividend yield of 2.5%, partly franked.
Motley Fool contributor Bernd Struben does not own shares in PSC Insurance Group Ltd.
