Looking to add a few promising ASX small-cap stocks to your growth portfolio?
Below we look at three ASX companies currently still on the smaller end of the market cap spectrum that could deliver shareholders some juicy returns in FY 2025 and beyond.
These stocks were each named as top picks by leading fund managers at the Pinnacle Investment Management Group Ltd (ASX: PNI) 2024 Investment Summit.
Riding the energy transition
The first ASX small-cap stock tipped to potentially outperform in FY 2025 is Gentrack Group Ltd (ASX: GTK).
Gentrack provides customer billing software to energy utility companies.
And Eleanor Swanson, portfolio manager at Firetrail Investments, said this is one stock investors should keep a close eye on.
Firetrail recently added Gentrack to its own portfolio.
"The reason we like Gentrack is it's going to benefit from the energy transition, not only in Australia but globally," Swanson said.
She added:
The distribution model for energy utility companies is becoming a lot more complicated now that we've got wind and solar, battery storage, and customers pushing energy back the grid.
A technology provider like Gentrack, with its modern, flexible architecture, is going to take enormous market share from SAP and Oracle and help those energy utility companies transition their businesses and service their customers better.
Swanson believes that this ASX small-cap stock could rival the biggest players in time.
"We think Gentrack's a stock that everybody should have a look at and hopefully it'll become a household name like a WiseTech Global Ltd (ASX: WTC) or an Altium," she said.
The Gentrack share price is up 132% in a year.
ASX small-cap stock growing annual revenues
The second ASX small-cap stock tipped for strong growth is RPM Global Holdings Ltd (ASX: RUL).
David Wanis, co-founder of Longwave Capital Partners, said RPM Global is one of Longwave's top investment ideas in the current market.
"RPM Global is a mining service company on 50 times earnings, and that combination is a reason why companies like this in small caps get overlooked," he said.
So what caught Longwave's interest?
According to Wanis:
RPM Global has been around for 20 years developing software for tier 1 mining companies like BHP Group Ltd (ASX: BHP), Rio Tinto Ltd (ASX: RIO) and Newmont Corp (ASX: NEM) to help them manage all parts of their line operations.
RPM Global have spent about $200 million on R&D over the past 20 years building the software out. And they're now starting to see real traction, and that's the annual recurring revenue growth from the software that they're giving to clients.
It's not just the growth up until today that we're interested in or excited about with this stock, but it's the growth for the next five years and well beyond that.
As for what underpins this strong growth outlook, Wanis said this ASX small-cap stock is still "really early in the penetration story".
Wanis said:
Only 25% of Tier 1 miners are current customers. So RPM Global have a lot of new customer opportunities and they have multiple modules to sell. The strategy for RPM Global will be 'land and expand'.
The RPM Global share price is up 58% in a year.
Which brings us to…
Exciting growth potential for this ASX small-cap stock
The third ASX small-cap stock tipped for strong potential outperformance at the 2024 Pinnacle Investment Summit is NZME Ltd (ASX: NZM), which operates three business segments.
Spheria Asset Management co-founder Matthew Booker is particularly bullish on the potential for the company's property portal.
"We are not there for the paper business, we're not there for the audio business, we're actually there for the property portal, and we think there's exciting growth for that," he said.
"NZME to New Zealand, is basically what Fairfax was to Australia 10 years ago, and Fairfax 10 years ago was seen as a dead business," he added.
According to Booker:
What came out of Fairfax 10 years ago was Domain. And within NZME is a division called One Roof, and like Domain in Australia, it's the second biggest property portal in New Zealand.
The New Zealand property market has been slow to shift to digital, and if you apply the same margin that Domain does here with 20%, we think One Roof is going to play out in a big way for NZME.
Currently NZME is trading around NZ$190 million. So, we think this is a great valuation story, we think there's a good growth story, and we think that that the One Roof business has got some huge growth ahead of it.
The NZME share price is down 1% in a year.
