Buy this cheap small-cap ASX share for a very big return

Bell Potter thinks investors should be snapping up this small cap while it is cheap.

| More on:
a woman holds a facebook like thumbs up sign high above her head. She has a very happy smile on her face.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

If you're looking for big returns, then it could be worth checking out the small side of the market.

That's because in exchange for higher risk, investors have the potential for higher rewards.

For example, the small-cap ASX share in this article has been tipped to provide investors with a return that is more than double the historic market return.

Let's see what analysts at Bell Potter are saying about this small cap.

Which small-cap ASX share is a buy?

According to a note out of Bell Potter, following a change of analyst, the broker has reaffirmed its buy rating and 29 cents price target on Capitol Health Ltd (ASX: CAJ) shares.

Based on its current share price of 24.5 cents, this implies a potential upside of 18% for investors over the next 12 months.

In addition, the broker is expecting the medical imaging company to pay fully franked dividends of 1 cent per share in FY 2024, FY 2025, and FY 2026. This will mean dividend yields of 4.1% each year, boosting the total potential return to over 22%.

To put that into context, a $10,000 would be worth approximately $12,200 in 12 months if Bell Potter's recommendation proves accurate.

It is also more than double the historical return of the share market, which sits at around 10% per annum.

Why is it bullish?

The note reveals that Bell Potter has boosted its revenue estimates for the coming years. This is to reflect the normalising of volumes and pricing growth rates. And while the broker expects inflationary pressures to weigh on margins in the near term, it appears to believe that this is more than priced into the small-cap ASX share's valuation at present. It commented:

On the transfer of coverage, we have reviewed our earnings estimates. Across FY24e – FY26e, we have increased our revenue estimates by c.1.6% / c.4.7% / c.7.9% driven by normalising volume and pricing growth rates across DI Services and Benefits. However, we expect inflationary pressures to dampen the recovery in operating margins and a lower plateau than previous estimates with margins levelling out at c.22% by FY28e.

This leads to a cut in earnings expectations of c.-8% / c-4.8% / c.- 13.4%. We have upgraded our blended DCF / EV / EBITDA valuation by c.3.6% to $0.29 / sh, reflecting adjustments in our valuation parameters. Catalysts for the share price include continued positive momentum in the Medicare data and M&A activity.

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 no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Healthcare Shares

Shot of a mature scientists working on a laptop in a lab.
Healthcare Shares

Telix Pharmaceuticals share price sinks on unexpected Nasdaq news

ASX 200 investors are bidding down the Telix Pharmaceuticals share price today. But why?

Read more »

Health workers shake hands and congratulate each other on good news.
Healthcare Shares

This ASX 200 healthcare stock is up 48% in a year, but one director is still buying!

A director of this ASX 200 healthcare company has just lifted his personal stake by 50%.

Read more »

A man and woman in an office look at a laptop and discuss investing, budget strategies or other financial concepts
Healthcare Shares

Why this broker just upgraded Telix shares to a buy rating

Bell Potter thinks a recent pullback has created a buying opportunity.

Read more »

A female scientist sits at her desk looking stressed out while working in an AnteoTech lab.
Healthcare Shares

Sigma share price dives 6% on Chemist Warehouse merger hurdle

The proposed merger faces ACCC concerns.

Read more »

A person wrapped in warm clothing with head, eyes and face covered by a hat, glasses and a scarf is coated in a layer of snow and ice. representing Strike Energy's trading halt today
Healthcare Shares

Why is the Telix Pharmaceuticals share price frozen today?

Telix Pharmaceuticals shares won’t be moving today.

Read more »

Shot of a mature scientists working on a laptop in a lab.
Healthcare Shares

3 ASX 300 healthcare stocks 'well positioned to outperform'

Wilsons thinks the healthcare sector could be about to outperform the broader market.

Read more »

A woman researcher holds a finger up in happiness as if making the 'number one' sign with a graphic of technological data and an orb emanating from her finger while fellow researchers work in the background.
Healthcare Shares

CSL shares can 'absolutely' head to $500: ASX expert

This expert reckons it's foolish to bet against CSL...

Read more »

Doctor doing a telemedicine using laptop at a medical clinic
Healthcare Shares

2 ASX biotech shares that could be the next Telix Pharmaceuticals

These ASX biotech shares could become the next Telix Pharmaceuticals. But how?

Read more »