Investing in ASX small-cap shares has its risks, but it can also yield outsized gains.
One example is Smart Parking Ltd (ASX: SPZ), whose share price has doubled over the past year. For context, the S&P/ASX Small Ordinaries Index (ASX: XSO) and the All Ordinaries Index (ASX: XAO) have advanced by approximately 6% during the same period.
Can Smart Parking keep doing its smart magic?
Image source: Getty Images
Why did Smart Parking shares soar?
As the company name implies, it specialises in cutting-edge parking technology. It provides real-time space availability, efficient space management, and seamless payment solutions.
Smart Parking's stock has been rising due to the company's strong business performance. The provider of car parking technology has been rapidly expanding its presence in Australia, New Zealand, and Europe. The number of parking sites under management has increased from 286 in June 2018 to 1,219 in December 2023.
Such rapid expansion of its car parks under management led to strong financial results. In 1H FY24, which ended on 31 December 2023, the company delivered a 20% revenue growth to $26.6 million and a 26% growth in its earnings before interest, taxes, depreciation, and amortisation (EBITDA) to $6.7 million.
The company has been rapidly expanding its presence in Europe. Smart Parking initially focused on growth in the UK, then expanded to New Zealand in FY21, Australia and Germany in FY22, and most recently Denmark.
The company's total addressable market is growing as the overall market expands. There are 45,000 parking sites in the UK, 90,000 in Germany, and 10,000 in Denmark, totaling 145,000 in these three countries. Smart Parking currently holds less than 1% market share in these areas.
Business outlook
Smart Parking's growth comes from its operations' scalability and the ongoing expansion. In March 2024, the company acquired Local Parking Security in the UK, adding 126 new parking management sites.
Management is optimistic about the future. In the 1H FY24 update, the company reaffirmed its target to reach 1,500 sites under management by December 2024, marking a 25% increase from its December 2023 figure.
The company also sees "significant new interest and investment from private equity in the UK private parking management market." Two transactions in 1H FY24 demonstrate the attractive growth opportunity in the UK, the company added.
How expensive are Smart Parking shares?
Smart Parking shares are valued at a price-to-earnings (P/E) ratio of 28x based on its trailing 12 months' earnings and 22x based on FY25 earnings estimates by S&P Capital IQ. Compared with a few other ASX technology small-cap shares, using S&P Capital IQ estimates:
- VEEM Ltd (ASX: VEE) shares are valued at 31x FY25 earnings estimates
- DUG Technology Ltd (ASX: DUG) shares are valued at 36x FY25 earnings estimates
- IPD Group Ltd (ASX: IPG) shares are valued at 17x FY25 earnings estimates
The Smart Parking share price is down 1% at $0.54 at the time of writing.
