If you have a higher than average tolerance for risk, then it could be worth considering some exposure to the small side of the market.
That's because small cap ASX shares come with higher risk but also higher rewards.
But you can't just buy any old small cap. That's a surefire way to send your money up in flames.
So, which small cap ASX shares could be buys? Well, two that Morgans has recently tipped as buys are listed below. Here's what the broker is saying about them:
Bluebet Holdings Ltd (ASX: BBT)
The first small cap ASX share that gets the thumbs up from the broker is Bluebet. It is a sports betting company which recently completed a tie up with betr.
Morgans is feeling very upbeat about the company and thinks its shares are undervalued at current levels.
It recently put an add rating and 33 cents price target on them. Based on its current share price of 26.5 cents, this implies potential upside of approximately 25% for investors over the next 12 months. It said:
BlueBet Holdings (BBT) released its 1Q25 results today, reporting strong performance despite not yet fully benefiting from the impact of the betr migration. Cash active customers at the end of the period were 120,185, driving turnover of $286.6m with a net win margin of 9.7%, exceeding the market's and our expectations. Impressively, the margin reflects the company's rapid success in monetising betr's customer base within a short timeframe.
We have updated our model following this morning's 1Q25 result. We now forecast underlying EBITDA of $4.0m in FY25 (previously $4.6m), reflecting a rebasing of customer adds and the associated profitability per customer. Our price target remains at $0.33, following these adjustments, refreshing of comps and improved margins post-merger with betr. We retain our Add recommendation.
Universal Store Holdings Ltd (ASX: UNI)
Another small cap ASX share that has been given the equivalent of a buy rating is Universal Store.
It is a youth fashion retailer that has continued to grow at a strong rate even in the tough economic environment.
Morgans recently put an add rating and improved price target of $8.75 on its shares. Based on its current share price of $7.65, this implies potential upside of 14%. It also expects a fully franked dividend yield of 4.4% in FY 2025, making things even sweeter for investors.
The broker was impressed with its strong start to FY 2025. It commented:
Universal Store Holdings October 30, 2024 At its AGM, UNI provided a trading update for the first 17 weeks of FY25 with total direct to consumer (DTC) sales up by an impressive 19.3% on the pcp. LFL sales in Universal Store and Perfect Stranger accelerated in the last 10 weeks from the first 7 weeks, whilst sales moderated in CTC THRILLS DTC business and wholesale demand (ex-Universal Store) remains volatile.
Gross margins have been well managed, in our view, and improvements made in 2H24 have continued into FY25 driven by mix (increased private label penetration). Costs as a percentage of sales have increased YTD yoy which is due to investment in headcount as well as capability for implementation of new ERP and POS system. We have made modest increases to our earnings forecasts up 2% in FY25 and 3% in FY26 respectively. We retain our ADD recommendation and have increased our price target to $8.75 (from $8.10).
