2 ASX small-cap shares I'd buy for massive growth potential

I'm bullish about these two stocks.

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The ASX small-cap share sector can be a great place to find small, undervalued opportunities. I'm going to talk about two businesses that could become much bigger companies in the coming years.

I believe good, smaller companies are able to deliver strong results over the long-term because it's much easier to grow a business from $100 million to $200 million than it is to go from $10 billion to $20 billion.

Of course, a small business isn't guaranteed to grow. We need to find the right businesses which ideally have useful tailwinds. In my opinion, the below ASX small-cap shares are delivering on their promising potential.

Playside Studios Ltd (ASX: PLY)

Playside develops video games for mobile, PC, consoles, virtual reality and mixed reality, with a portfolio of approximately 60 titles.

The company publishes its own games based on "original intellectual property". It also provides end-to-end game development services in collaboration with game studies and major technology and entertainment companies, including Activision Blizzard, Meta Platform Technologies, Netflix Games and Take Two Interactive.

The ASX small-cap share also has a publishing arm that provides funding, development support, marketing and publishing of third-party games from smaller independent studios.

The video gaming sector is growing at a solid rate – according to VanEck, revenue has grown by an average of 12% per annum since 2015. Video games, and particularly e-sports, are seeing strong long-term growth thanks to a growing audience.

Playside is expecting to report strong growth in FY24. Revenue is forecast by the company to be between $63 million to $65 million, which would represent growth of between 64% to 69%.

FY24 earnings before interest, tax, depreciation and amortisation (EBITDA) is expected to be between $16 million to $18 million, up from previous guidance of $11 million to $13 million. It's a positive indicator when a business is able to upgrade its guidance, showing good momentum. The company made a $1.7 million loss in the prior corresponding period.

I think it's a great sign when a business reaches the milestone of positive earnings, and it bodes well for what effect future revenue could have on the company's bottom line.

Close The Loop Ltd (ASX: CLG)

This business collects and repurposes or recycles products through takeback programs, with locations in the US, Australia, South Africa and Europe. It also has a sustainable packaging division which "enables greater recoverability and recyclability", according to the company.

The world is aiming to become more sustainable, and Close The Loop is an ASX small-cap share that can enable that goal.

One of Close The Loop's key customers is HP, which wants to reach a 'circularity' target of 75% for its products and packaging by 2030. HP ships around 40 million PCs every year, including all of the printers and other products the company makes. There is a large opportunity for the company, which was recently awarded HP's 'Renew Solutions Launch Partner' of the year.

HP recently told the market its HP Renew Solutions margins are "at least as profitable as new PCs and printers, making this a win for HP and the environment", according to Close The Loop.

Close The Loop recently announced it was exploring expansion opportunities in the US, EU, and the Middle East. It also said a new plant in Mexico will be running by October 2024, the European print consumables program will be expanded into Spain and Portugal, and a second TonerPlas line will be constructed after the awarding of $2.2 million in government funding.   

According to Commsec, the Close The Loop share price is valued at just 7x FY24's estimated earnings. This looks cheap, in my opinion, for how promising the company's future seems.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Motley Fool contributor Tristan Harrison has positions in Close The Loop. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Close The Loop, HP, Meta Platforms, Netflix, and Take-Two Interactive Software. The Motley Fool Australia has recommended Close The Loop, Meta Platforms, and Netflix. 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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