Having some exposure to the small side of the market can be a good thing for a balanced portfolio.
That's because the returns from small-cap ASX shares can be superior to large caps. However, the trade-off here is that they come with higher risk.
With that in mind, let's look at two small-caps that Morgans believes offer a compelling risk-reward right now. They are as follows:
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Accent Group Ltd (ASX: AX1)
This footwear focused retailer could be a small-cap ASX share to buy now.
It was pleased with its investor day event, which outlined bold growth plans through to 2030.
In response, the broker has retained its buy rating and 75 cents price target on Accent's shares. This implies potential upside of 32% for investors from current levels.
Commenting on Accent, the broker said:
AX1 hosted an Investor Day, outlining its 2030 strategic plan, targeting sales of $1.9bn, 9%+ EBIT margin and 950 stores. This will be driven by operating efficiencies (cost out and store optimisation), growth of sports related banners (Sports Direct, TAF) and growth in vertical owned brands. AX1 also outlined a pathway to profitable growth in FY27, underpinned by closure of loss making Glue/ OzSale, TAF reacquisitions, cost efficiencies and FX tailwind.
We have made no changes to our FY26 forecasts, but increase our EBIT by 2%/1% in FY27/28 incorporating further cost efficiencies. We retain our BUY recommendation and target price of $0.75.
BlinkLab Ltd (ASX: BB1)
Another small-cap ASX share that Morgans is positive on is BlinkLab.
It is a digital healthcare company focused on developing and commercialising a smartphone-based neuroscience diagnostic platform to aid the early diagnosis of Autism Spectrum Disorder (ASD).
Morgans has been impressed with its pilot study and sees a number of potential share price catalysts on the horizon.
As a result, it has put a speculative buy rating and $1.76 price target on its shares. This implies potential upside of over 150%. It commented:
BB1 has recently completed a $17.5m capital raising which comfortably funds its two clinical programs, ASD and Attention Deficit/Hyperactivity Disorder (ADHD), through to approval, which the company expects in FY27 and FY28, respectively. BB1's pilot study showed impressive results. As a result, a pivotal study recruiting 528 participants is due to read out in late CY26, representing a key milestone.
A successful result would see regulatory clearance around 1QCY27. In parallel, the much larger ADHD opportunity is progressing. Offering potential share price catalyst through upcoming news flow, we initiate coverage of BB1 with a A$1.76 target price and SPECULATIVE BUY rating for investors with a higher risk profile.
