Having a little exposure to the small side of the market could be a good thing according to analysts at Wilsons.
And while small cap ASX shares have been outperforming their larger counterparts since the first RBA cut in February, the broker doesn't believe it is too late to act. It said:
Despite recently outpacing larger peers, this trend can continue, supported by rate cut tailwinds, superior earnings growth and relatively cheap valuations.
But which small caps could be buys? Wilsons has picked out two that it is particularly positive on. They are as follows:
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Nanosonics Ltd (ASX: NAN)
The first small cap ASX share that could be a buy is infection prevention company Nanosonics.
Wilsons thinks that its shares are good value given its strong growth outlook. It said:
Nanosonics (NAN), a medical device infection solutions company, is well-positioned, supported by the strong performance of its core business, TROPHON, and the upcoming launch of CORIS. Taking a medium-term view, NAN trades on a three-year forward P/E of 36x, offering five year EPS CAGR of 21% and fundamentals of increasing recurring revenues and margin expansion.
In addition, the broker is feeling positive about the aforementioned launch of its new CORIS product. It adds:
With its recent FDA approval, CORIS, the first device cleared for automated cleaning of flexible endoscopes, is set to launch in FY26 and deliver material earnings upside. CORIS has significant potential, sharing TROPHON's strengths but adding three key advantages.
These advantages are its entry into an untapped market as an unrivalled solution, its even higher consumables revenue stream, and expectations for faster adoption.
Ridley Corporation Ltd (ASX: RIC)
Another small cap ASX share that Wilsons is bullish on is Ridley Corporation.
It is an integrated animal feed manufacturer serving a mix of species and lifecycles. This includes delivering commercial stock feeds direct to farm gates, packaged feeds for stock and companion animals, and ingredients, including raw materials, additives, supplements and animal meals.
Wilsons also highlights that its shares are attractively priced based on its growth outlook. It explains:
We are attracted to Ridley's (RIC) effective strategy of reinvesting to support volume growth and premiumisation, as well as its highly accretive acquisition of a leading fertiliser distribution business. RIC screens attractively at a forward P/E of 19x while offering three year EPS CAGR of 15%.
In addition, the broker points out that the small cap has a "significant opportunity" with its fertiliser distribution business. It adds:
RIC has a significant opportunity to deliver upside to its recently acquired fertiliser distribution business (IPF). The market has already rewarded RIC for this disciplined acquisition, delivering pre-synergy EPS accretion of 18%+, rising to 25%+ with straightforward cost synergies. What is underappreciated, however, is management's ability to further optimise IPF's operations by applying the same playbook it has been executing in animal nutrients (i.e. targeted reinvestment, efficiency improvements), which has a similar business model, which could lift accretion to well over 30%.
