The small side of the market has been a difficult place to invest recently.
While this is disappointing, it could have created some great buying opportunities for patient long-term focused investors.
For example, the two ASX small cap shares listed below have been tipped as buys with major upside potential. Here's what analysts are saying about them:
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PeopleIn Ltd (ASX: PPE)
This workforce management company could be a small cap ASX share to buy. That's the view of analysts at Morgans, which have named it on the broker's best ideas list again this month.
The broker believes its shares are dirt cheap at the current level given its strong earnings growth and defensive qualities. It commented:
PPE is trading back at $3.00/sh [now $2.60] and a sub-10x PER. We continue to think it looks cheap for a company that has grown earnings at c.20% year in year out – company guidance has EBITDA growing 35% in FY23. We are buoyed by management's focus on making the business more defensive, and capable of navigating any potential downturn. The opportunity under the Pacific Australia Labour Mobility (PALM) scheme is massive and following the Federal Government's Job Summit, there has rarely been more focus on increasing migration.
Morgans has an add rating and $4.90 price target on its shares. This implies potential upside of almost 90%.
Readytech Holdings Ltd (ASX: RDY)
Another small cap ASX share that analysts rate highly is Readytech.
It is a growing provider of mission-critical software-as-a-service (SaaS) solutions for the education, employment services, workforce management, government and justice sectors.
Goldman Sachs is positive on the company. It believes Readytech is well-placed to continue its solid growth in the current environment thanks to its defensive earnings. It explains:
[We] believe RDY is now passing through margins from cost headwinds (tech wage pressures) and R&D investment, with the company well-placed to grow margins back towards mid-to-high 30s as larger, higher-margin enterprise deals increasingly drive growth from here. RDY is now trading at ~17x FY24 P/E while delivering ~20% FY23-25E EBITDA CAGR, supported by its defensive public sector end-markets (~3/4 of earnings) and mission-critical software systems
Goldman has put a buy rating and $4.40 price target on its shares. This suggests potential upside of almost 50% for investors.
