'Very attractive current price': 3 All Ords shares Forager is riding to the moon

Forager analysts urge investors to take a look at these small-cap stocks before they explode out of the blocks.

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Among all the daily noise about the stock market, it's easy to miss the potential that some of the smaller cap All Ordinaries Index (ASX: XAO) shares boast.

The team at Forager Australian Shares Fund is especially keen on three All Ords stocks in particular, and it explained why in its latest memo to clients:

'Knocking on the door' of the big boys

Readytech Holdings Ltd (ASX: RDY) makes software for the education and public sectors, plus medium-sized businesses.

The share price has rocketed 20% since 22 August, on the back of annual results that Forager analysts called "a picture of continual growth, improving profit margins and increased cash operating leverage".

"Total revenue climbed 32% for the year while organic revenue (excluding acquisitions) was up 13%.

"This continues the company's strong organic growth, sourced from higher prices, selling more software modules to existing customers and adding new clients."

If all goes according to the company's targets, the Forager team reckons Readytech will be raking in cash profit margins of about 25% of revenue by 2026.

"That would be good enough to drop about $25 million of free cash flow into the business, a very attractive 6% free cash flow yield on today's price, while still growing healthily," the memo read.

"With results like these, Readytech is knocking on the door of the Australian technology big leagues."

Forager has plenty of support with this pick. All five analysts currently surveyed on CMC Markets rate Readytech as a buy.

Famous clients generating big profits 

The Forager analysts were also pleased with RPMGlobal Holdings Ltd (ASX: RUL)'s continued revenue growth during reporting season.

The tech provider to the mining industry is signing up some big-name customers.

"New clients included the likes of BHP Group Ltd (ASX: BHP), Worley Ltd (ASX: WOR) and Mineral Resources Ltd (ASX: MIN), again cementing the quality of the product."

The additional sales are assisting RPMGlobal to boost its cash flow and profit, which are absolutely essential for tech stocks in the current market climate.

"Software revenue rose more than 50%, with 56% of that dropping through to the segment profit line. 

"This is despite the company paying a management incentive during the year for software sales that will be mostly recognised as revenue in subsequent years."

While Forager has been forced to be patient with Readytech and RPMGlobal because their stock prices have "stagnated", its third All Ords pick is on the way up already.

New Zealand business Tourism Holdings Ltd (ASX: THL)'s shares are now more than 15.3% up from a 10 August trough.

"The campervan rental company delivered a great result and provided commentary that gives us confidence in further profit growth into 2024 and beyond," read the Forager memo.

"Forager's profit expectations are higher than broker estimates and, despite a strong rise over the past year, would make the current price look very attractive."

Much will be revealed at the coming annual general meeting, the analysts added.

"Management commentary about permanently higher yields and the continued recovery of international tourism arrivals into Australia and New Zealand supports our view."

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended RPMGlobal and ReadyTech. The Motley Fool Australia has recommended RPMGlobal and ReadyTech. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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