Morgans names the best small cap ASX shares to buy in May

The broker has these small caps on its best ideas list this month.

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If you have a higher-than-average tolerance for risk, then you might want to consider adding some small caps to your investment portfolio.

But which small cap ASX shares should you buy?

Listed below are three that Morgans has on its best ideas list. Here's why it is bullish on them:

AVITA Medical Inc (ASX: AVH)

This regenerative medicine company's shares could be seriously undervalued according to Morgans. Particularly given the recent expansion of the ASX small cap share's RECELL technology into new and lucrative indications. The broker commented:

AVH is a regenerative medicine company focusing on the acute wound care market. It has recently expanded its indication into full thickness skin defects and Vitiligo (US$5bn TAM). The expanded indication in full thickness skin defects has the required reimbursement in place and sales have started. AVH has provided revenue guidance for FY24 of growth of ~64% and importantly has guided to achieving profitability by 3QCY25. At the same time, the company is seeking approval by the FDA for its automated device RECELL Go, which if successful will launch 1 June 2024, and will be a meaningful driver of rapid adoption by clinicians.

Morgans has an add rating and lofty price target of $6.40.

Camplify Holdings Ltd (ASX: CHL)

This peer-to-peer RV rental operator could be a small cap ASX share to buy according to Morgans.

It likes the company due to its market leadership position in a significant global market. The broker said:

We expect CHL to continue to grow into its large addressable market locally, with over 790k registered RVs in Australia and ~130k in NZ. CHL only has ~2% of these on its platform. It has broadly doubled its domestic fleet since listing and with its acquisition of Germany- based PaulCamper (PC) now has a total fleet of over 29,000, making it a true global player.

Morgans has an add rating and $2.85 price target on its shares.

Superloop Ltd (ASX: SLC)

Another small cap ASX share to consider buying is Superloop. It is a growing telco with over 400,000 customers.

The broker is a big fan of Superloop and has named it as its top telco pick. This is thanks to its strong balance sheet and earnings and free cash flow growth. It explains:

SLC is our key telco pick. It's the fastest growing, has a solid balance sheet (virtually no debt), and the highest Free Cash Flow yield in our coverage. The share price has lifted following a substantial upgrade to earnings expectations and a takeover offer from ABB (which the SLC Board declined). Even though the share price is up ~100% over the past 6 months, earnings have more than exceeded this. EPSA and FCF have lifted ~150% over the same period so we still see good fundamental value in SLC.

Morgans has an add rating and $1.50 price target on its shares.

Motley Fool contributor James Mickleboro 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 Aussie Broadband and Avita Medical. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Camplify. The Motley Fool Australia has recommended Aussie Broadband, Avita Medical, and Camplify. 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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