If you have a high risk tolerance, then it could be worth adding some small cap ASX shares to your portfolio.
But which small caps could offer a compelling risk/reward?
Listed below are two small caps that analysts are very bullish on right now. Here's what they are saying about them:
AVITA Medical Inc (ASX: AVH)
The first small cap ASX share that could be a buy according to analysts is AVITA Medical.
It is a regenerative medicine company with a focus on wound care management and skin restoration with its RECELL technology.
Morgans is positive on the company and sees significant value in its shares at current levels. It 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.
The broker has an add rating and $6.40 price target on its shares. Based on the current AVITA Healthcare share price of $2.50, this suggests that the company's shares could more than double in value over the next 12 months.
Universal Store Holdings Ltd (ASX: UNI)
Another small cap ASX share that could be a buy is Universal Store. It is the youth fashion retailer behind the eponymous Universal Store brand, as well as the Perfect Stranger and Thrills brands.
Bell Potter sees the company as a small cap to buy right now thanks to its store rollout and margin expansion opportunities. It said:
Management execution remains a key strength for UNI and we see good growth trajectory for the name given the building of core brands while growing its store rollout. In our view, the higher margin sales from the majority private label sales should become a major driver of margin improvement and earnings growth, in an expanded store footprint. While we remain cautious on the overall consumer sentiment, given the return to positive comps while cycling elevated pcp through Jan-Feb, we think UNI is well placed as comps become supportive through the 2H.
The broker currently has a buy rating and $6.15 price target on its shares. This implies potential upside of approximately 28% for investors over the next 12 months. The broker also expects 5%+ dividend yields from its shares this year and next.
