Small cap ASX shares can often surge higher and faster than their larger cap rivals for a whole bunch of reasons.
They may be in an earlier stage of their business life cycle, meaning market share could be rising very quickly. Or the industry that they are in could be fairly new.
Or the companies could be offering more innovative products and services compared to the incumbents.
This potential is especially relevant now after 18 months of underperformance from small-cap stocks. Investors have fled to safety of large caps while inflation, interest rates and wars make them anxious.
Here is a pair of small-cap ASX shares that the team at IML are loving at the moment:
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8 of 9 analysts reckon this stock is a buy
Automotive parts provider GUD Holdings Limited (ASX: GUD) has already enjoyed a handsome 25.4% increase in its share price so far in 2023.
The IML analysts put this down largely to the first half performance.
"The result was underpinned by a strong performance from its core wear and tear business, while the recently acquired APG delivered a slight improvement in underlying earnings with a positive outlook on the back of an improving supply of new vehicles," read their memo to clients.
Despite the spectacular rise, a buying opportunity still exists.
"The stock still trades at a very attractive price of 12 times FY '24 earnings, with a yield of 5%, reflecting the very low expectations implied by the market prior to the result."
The wider professional community largely agrees with the IML team.
According to CMC Markets, eight out of nine analysts currently rate GUD shares as a buy.
Taxis are still going gangbusters
With the rise of ridesharing apps, taxi companies such as A2B Australia Ltd (ASX: A2B) may not be in vogue.
But that hasn't stopped the A2B share price from rocketing an amazing 43.3% year to date.
A couple of recent catalysts really pleased the market, according to the IML analysts.
"It reported a strong result in February with revenue up 22% and driver volumes recovering from the disruptions caused by COVID," read the memo.
"Then in March A2B reported it had sold its Alexandria, Sydney property for a price of $78m which was a strong outcome in a softening property market."
The IML analysts reckon that a nice gift could be coming for A2B investors after that real estate sell-off.
"The sale should result in a sizable, fully-franked special dividend being paid to shareholders by the end of this calendar year."
That's in addition to the usual 3.17% dividend yield that A2B is already paying out.
