Higher interest rates are meant to hurt asset prices, but there seems to be a bit of a disconnect between ASX small-cap shares and the large businesses in the tech space.
I really like the look of these two stocks because of their potential for growth.
Frontier Digital Ventures Ltd (ASX: FDV)
The Frontier Digital Ventures share price is down 44% over the past year and it's down around 75% since November 2021. It's been a heavy fall, as we can see on the chart below.
This business invests in, and owns, leading online 'classifieds' marketplaces in emerging regions. It's largely focused on property and automotive portals in places like Latin America, the Middle East, North Africa, and Asia.
We've seen plenty of success from ASX shares that operate in similar sectors, including REA Group Limited (ASX: REA) and Carsales.com Ltd (ASX: CAR), though there's no guarantee there will be remotely anywhere as much success with this stock.
In these emerging market regions, there is still a lot of digital adoption to occur to reach the level seen in Australia. Growth of revenue is very helpful for profitability because of the businesses' strong gross profit margins – how much does it cost to deliver a digital service?
The ASX small-cap share seemingly has strong operating leverage potential and it recently reached profitability at the earnings before interest, tax, depreciation and amortisation (EBITDA) level. It made $2.2 million of operating EBITDA and achieved positive operating cash flow in the three months to September 2023. Yet, the Frontier Digital Ventures share price is much lower than it was before. By 2030, I think this company could be making a lot more profit and be valued much higher.
Bailador Technology Investments Ltd (ASX: BTI)
This is a company that invests in unlisted technology businesses that have global addressable markets, international revenue generation, usually generate recurring revenue, have good unit economics and are in the 'expansion stage' of growth.
At the moment, it has businesses like Siteminder Ltd (ASX: SDR), Rezdy, Access Telehealth, Rosterfy, Nosto and Mosh as investments. There have been plenty of other investments, but these have typically been sold for huge profit compared to the investment cost. One recent example was the sale of InstantScripts to Wesfarmers Ltd (ASX: WES).
The Bailador share price is currently at a 23% discount to its post-tax net tangible assets (NTA), which is a large discount considering the underlying businesses are growing strongly.
Until the market recognises the potential, Bailador is paying a sizeable dividend yield.
I think this ASX small-cap share can deliver good capital growth and dividends to 2030, and this is a good time to invest while the market is uncertain.