ASX small-cap shares can be some of the most exciting stocks to be invested in. If I had $5,000 to invest in small businesses with big potential, I know which two I'd want to own.
Finding promising companies that are early on with their growth journeys can lead to big returns.
If a $1 billion company grows to $2 billion, that's doubling in size. If a $200 million business becomes $2 billion, that's growing 10x in size. Investing in small-caps can be a higher risk as no business is guaranteed to grow, but I really like the prospects of the two names below.
Airtasker Ltd (ASX: ART)
Airtasker describes itself as "Australia's leading online marketplace for local services, connecting people and businesses who need work done with people who want work".
The company offers countless task categories, including home cleaning, furniture assembly, deliveries, removalists, handyman work, gardening, pet care and so on.
The Airtasker platform is growing in popularity over time, and that's great because it has a high gross profit margin. Increased revenue is rapidly translating into profitability, despite the company's heavy investment in growth.
In the FY24 first-half result, the Airtasker marketplace revenue grew by 10.3% to $18.9 million, while group revenue increased 6.8% to $23.3 million. I think that's a good growth rate considering the difficult broader economic situation with the elevated cost of living.
The ASX small-cap share's group earnings before interest, tax, depreciation and amortisation (EBITDA) rose $7.1 million to $2 million. Positive operating cash flow grew $7.6 million to $1.4 million, and positive free cash flow increased $4.7 million to $0.1 million.
Reaching positive profit numbers is a real milestone for a company like Airtasker, in my opinion. If revenue keeps growing at a good rate, then I think (underlying) profit can soar.
In June 2023, the business formed a media-for-equity partnership with Channel 4 in the United Kingdom. In HY24, UK-posted tasks increased by more than 30%, which bodes well for the future. The United states saw revenue increase by 132.4% to US$57,000, where it's still early on with its growth.
I believe this company has a very promising future.
Close The Loop Ltd (ASX: CLG)
This ASX small-cap share has locations in Australia, Europe, South Africa and the US. It says it creates "innovative products and packaging that includes recyclable and made-from-recycled content, as well as collect, sort, reclaim and reuse resources that would otherwise go to landfill."
Close the Loop is involved in a number of areas of the 'circular economy' including "recovering a wide range of electronic products, print consumables and cosmetics, through to the reusing of toner and post-consumer soft plastics for an asphalt additive".
I think this company is becoming increasingly well-positioned for a world focusing on a sustainable future as it builds its solutions across packaging and consumables to a variety of markets.
Despite its investing level, the company is seeing good profit growth. HY24 revenue rose 76% to $103 million, and the gross profit margin improved to 36.2% (up from 32.8%). EBITDA jumped 139% to $22.7 million, while underlying net profit after tax (NPAT) increased 164% to $13.25 million.
Close the Loop said it was on track to beat its FY24 guidance of $200 million and it upgraded its EBITDA guidance to between $44 million to $46 million.
With a goal of 'zero waste to landfill, I think the company can expand in a number of different ways – it can grow its existing businesses as more people (and businesses) recycle, it can expand geographically, and it can enter into new areas of recycling.
