The ASX Small Ordinaries index has performed strongly over the past 12 months – up almost 16% compared to 9% for the S&P/ASX 200.

There have been a few standout performers in the small-cap index – notably the two companies below.

Clover Corporation Limited (ASX: CLV)

Clover Corporation has a market cap of about $259 million. It is engaged in the business of the refining and sale of omega-3 oils used in infant formula, supplements, and medical foods. As a mostly B2B business rather than a consumer brand-centric business, I think it represents a less risky play for investors than the pure infant formula businesses such as Bellamy's Australia Limited (ASX: BAL) and Bubs Australia Ltd (ASX: BUB).

Clover had a cracking results season which didn't seem to attract much attention. Revenue increased by 32% to $62.9 million and net profit increased by 109% to $7.6 million. The company also finished the financial year with a strong balance sheet and holding about $7.9 million in cash.

What I really like about Clover is the growth opportunities. The EU has passed legislation that all infant formula sold within its borders by 2020 must contain a prescribed minimum level of Omega 3. This provides Clover with a massive opportunity together with their investments in new products and manufacturing facilities.

Clover Corporation shares are trading at $1.58 on a PE of about 34 compared to Bellamy's of 27 – so it is not cheap. However, it's Price Earnings to Growth (PEG) ratio is about 1 so I don't think the company is overvalued given its potential.

Nearmap Ltd (ASX: NEA)

Nearmap has a market cap of about $770 million. It provides geospatial maps and aerial imaging technology for governments and private enterprise clients in Australia, New Zealand, and the United States.

Nearmap's earnings for 2018 were impressive – 2-year 35% annual compound growth in ACV (annual contract value) to $66.2 million in 2018. The share of revenue from US operations grew from 20% in 2017 to 26% in 2018 to $17.4 million. What's exciting investors with Nearmap is the addressable market, which in the US alone is estimated to be worth over $1 billion.

Although the company reported an $8 million loss for 2018, this was largely due to increased expenditure on sales and marketing in the United States. The Australian operations reported a segment profit of about $22 million on sales of $42 million. This highlights the potential earnings powerhouse this business could be if it captures a material share of the US addressable market.

Nearmap shares are trading at $1.74. This is about 12 times current revenue. Investors are clearly looking at the growth potential of this business. However, achieving market dominance in America will not be easy. There are some dominant players like Eagleview and ESRI which will present competitive challenges for Nearmap. How well it executes on the US strategy will determine the share price trajectory over the next 12 months.

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The billion-dollar question for Xero Limited (ASX: XRO) is this – can it succeed in the United States? The market has certainly priced some US success into the share price.  

As an accountant, I have used both Xero and its main competitor in the US – Intuit Inc. The US company's QuickBooks is a similar cloud-based accounting software with an immense presence and subscriber base. 

I thought it would be worth looking at Xero's competition in the US to determine if investors have been overly optimistic on Xero's ability to materially penetrate in the USA. 

Have a look at this table I prepared for both companies 

Xero has done incredibly well in the ANZ market, where it has about 583,000 subscribers and experienced 35% year on year (YOY) growth. This is largely due, I think, to MYOB Group Ltd. (ASX: MYO) meekly surrendering its early leadership position and sticking with an odd hybrid mix of cloud and installation software.  

Having used QuickBooks online I certainly don't think it is a touch on Xero. However, it is cloud-based user-friendly software – something MYOB is not.

Also, Intuit is a much bigger company than MYOB and will not surrender its lead easily. It has the financial resources and the customer base to fight a major battle with Xero. 

There are already signs the US market is going to be difficult for Xero.

In July this year, the company decided that payroll in the US was proving more difficult than first thought, and a partnership with Gusto was announced and all Xero US customers are now being transitioned to Gusto's payroll platform.

Another concern is the complex state taxes in the US which vary markedly between state agencies that all levy their own sales tax. This makes it more difficult to market a generic accounting software such as in Australia.

It also means that customers are probably more likely to stick to their existing software unless there are compelling reasons for a change. 

What the above table shows is that Intuit's online software is also finding favour in the US and significantly growing market share by about 38% from 2017 to total subscribers of around 2.6 million. A long way ahead of Xero's subscribers in the US of 132,000 at 31 March 2018. 

Of final note is the relative valuation of the two businesses. Xero is priced at around 15 times revenue, whilst Intuit is priced closer to 10. This means there will be a lot of focus on Xero's offshore growth figures over the next 12 months and any stumbling will likely result in the share price taking a hit. 

Foolish takeaway 

Xero has a compelling narrative and a great product. As do Afterpay Touch Group Ltd (ASX: APT) and WiseTech Global Ltd (ASX: WTC). I think particularly in Australia we want to believe these home-born companies can conquer the world. But as an investor it's vital to put the hard-hat on and critically examine what the stumbling blocks could be to the growth stories.  

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Whilst the market was fixated on many of the high-profile companies such as WiseTech Global Limited (ASX: WTC), Afterpay Touch Group Ltd (ASX: APT) and Altium Limited (ASX: ALU), some of the small cap companies were also reporting impressive results. 

Here are two that stood out for me. One is yet to make a profit, but I think it's headed in the right direction and could be worth adding to a watch list for medium term growth investors. 

Bigtincan Holdings (ASX: BTH)  

Bigtincan is a SaaS business which enables sales teams to work smarter and faster. It harnesses AI to predict customer requirements and what information will be most relevant to them and the sales team. The Bigtincan Hub is the industry's first sales enablement automation platform. For FY2018 the company reported a 42% increase in revenue to $13.1 million. However increased operating expenses led to an increase in net loss to $6.8 million. There was no explanation for the increase in operating expenses which was disappointing.  

On the plus side the net cash outflow improved dramatically from $7 million in 2017 to only $1.3 million in 2018. The company has grown revenue by 110% since FY2016 and if this trend continues and management can contain operating costs, Bigtincan should be cash flow positive in FY2019. The market was largely unmoved by these results and the shares are hovering around $0.30c and could be a good buy for those looking for a medium-term growth stock. 

Rhipe Ltd (ASX: RHP) 

Rhipe is in a different category to Bigtincan as it's profitable. Rhipe is in the high-growth business of cloud SaaS services and provides high margin services including licensing, business development and IT support. 

The company has been a solid performer on the ASX, with the shares climbing 54% in 12 months to close on Thursday at $1.30. Also, the revenue growth has been solid, increasing by 25% to $196.6 million in FY2018 for an EBITA of $6.4 million – a 22% increase from  FY2017. The company looks well positioned for growth in the Asia pacific region with 75% growth from this region.  

The demand for cloud-based services, data and support is expected to continue to drive revenue growth for Rhipe in 2019 and I would expect this business to outperform the ASX200 over the medium term. 

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WiseTech Global Limited (ASX: WTC) hit a record high of $20.54 on Wednesday – up an eye popping 31.33 % on the day. This takes the company's valuation to $4.7 billion. 

This was on the back of its 2018 results, showing a 44% increase in revenue to $221.6 million and a 45% increase in EBITA to $78 million. 

The company is no doubt priced to perfection at about 150 x earnings. However, it's not current earnings investors are looking at. Investors are clearly focused on the growth prospects of the company and I think the narrative here is compelling. 

WiseTech has grown revenue 115% since 2016. As WiseTech's CEO noted: "the company is now accelerating the flywheels" in terms of its global growth. The company has a sticky business, with annual customer attrition rate of less than 1%. 

Like Xero Limited (ASX: XRO), WiseTech is fast becoming the dominant global player in its industry. Its CargoWise flagship product is used by 34 of the world's top 50 third-party logistics providers. Its software is used in 130 countries by over 8,000 customers.  

The appetite for global growth and market dominance is something I really appreciate. Since 2017, WiseTech has acquired 15 founder-led software vendors which have delivered the company strong positions in countries such as Brazil, Ireland, France and Germany. 

The company has a goal of acquiring vendors which will give it 90% involvement in the world's manufactured trade flow. This will provide enormous scope to add additional services such as forecasting and AI into the product mix. 

The company is projecting another strong FY2019 with projected revenue of $315 million – $325 million and EBITA of $100 million – $105 million. 

What I also like about WiseTech is the massive spend on R&D at around $76 million in 2018. This R&D provided over 550 product enhancements and new features for CargoWise in 2018, which clearly contributed to the impressive customer retention figures. 

This is a company that is priced high and it's not a buy for those looking to make a quick dollar. However, the ASX is home to very few companies that can lay claim to be truly world best in industry – some of these are Xero, CSL Limited (ASX: CSL) and BHP Limited (ASX: BHP).

Generally, being world's best in class and market leader translates to better-than-average returns to investors. And this explains why investors were so keen to get a hold of WiseTech shares on Wednesday. 

Foolish takeaway 

Price Earnings (PE) ratio is one way of evaluating a business. However, for a business like WiseTech which is growing rapidly and fast becoming the global dominant player in its industry it's useful to look at metrics such as revenue growth, customer retention rate, global footprint and further scalability. 

The post Why WiseTech Global Limited shares soared and why I think it's still a buy  appeared first on The Motley Fool Australia.

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I think there are some great opportunities in the market now, mostly outside the ASX 100. Many investors are naturally drawn to the 'blue chip' companies based on historic metrics, divided yield, and a belief that blue-chip investments will always be a safe investment.  

In my opinion, a portfolio of solely blue-chip shares may be more likely to erode value in the long term – Telstra Corporation Ltd (ASX: TLS) being a prime example. Large businesses in the telco, banking and retail space are especially prone to disruption from newer, more agile entrants. 

If I had a handy $5,000 here is where I would invest. I already own some of these shares and the others are on my wish list. 

Nearmap Ltd (ASX: NEA) – $1,000 

Nearmap Ltd is an aerial imagery technology and location data company providing high-resolution images that are up to 6 times more detailed than satellite imagery. The company has a broad cross section of customers from government, solar, engineering and construction.  

What I think is exciting about the company are the competitive advantages it brings to the market, the scalability and the growth opportunities in the US or one day Europe. 

Nearmap is growing revenue at an impressive rate. For the first half of FY2018 group annualised contract value grew by 15% to $54.2 million. Net cash inflow from Australian operations was $11.3 million – most of which was used to fund the company's investment in the US. Nearmap is yet to make a profit after tax so there is an additional risk element to this investment. However, I think the additional risk is offset by the growth opportunities in North America and Europe. 

Fisher and Paykel Healthcare Corp Ltd (ASX: FPH) – $1,500 

The Fisher & Paykel Healthcare share price has had a great run in the past 12 months – up 33% to $14.04.  

Fisher & Paykel makes and designs products for use in respiratory care, acute health care and treatment of sleep apnea. 

The company is trading on a PE of about 43 which is not cheap but considerably less than another star performer Cochlear Limited (ASX: COH) in the medical device field which trades on a PE of around 50.

For FY 2018 (March 31) revenues increased by 10% to NZ$981 million for a net profit after tax of NZ$190 million. 

What excites me about Fisher & Paykel is the growth opportunities in the years ahead with an ageing population in developed countries coupled with a rapidly growing number of respiratory cases in Asia. 

Nextdc Ltd (ASX: NXT) – $1,500 

Nextdc is an ASX200 listed technology company with large scale investments in data centre outsourcing solutions, connectivity services and infrastructure software. 

Nextdc has had an amazing run in the past 12 months – up almost 64% to around $7.27 a share. The company posted a stellar result for the first half of FY18 with revenue up 32% to $77.5 million and underlying EBITA up 41% to $33.6 million. 

With the growth of cloud-based SaaS to continue to accelerate and Nextdc opening new data centres in Sydney, Perth and Brisbane in 2018 and 2019, I think that it will continue to outperform the market. 

Xero Limited (ASX: XRO) – $1,000 

I am a big fan of Xero – even at the current price of $45.01 a share. The reason is that it is shaping up to be the world's best SaaS accounting solution for small to medium businesses.  

The growth rate has been exceptional. As at 31 March Xero had 1.4 million subscribers – an increase of 351,000 from 2017. The UK growth has been particularly impressive with 47% subscriber growth to 312,000 and a revenue growth of 60% year on year. The company reported its first ever profit before interest, taxes, depreciation and allowances in FY 2018 of NZ$26 million. 

Xero is shaping up to be a truly global player, dominant in its field with numerous growth channels in Australia, Asia, Europe and the Americas.  

Foolish takeaway 

Diversification is the key to any portfolio and understanding trends. It seems like only yesterday that Domino's Pizza Enterprises Ltd (ASX: DMP) was the darling of the stock market, yet it's now looking a questionable hold due to the rise of Uber eats, issues around fair wages, and rumblings from franchisees.  

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Fisher and Paykel Healthcare Corp (ASX: FPH) shares finished the month on a roll – up $1.77 for the month to close last Friday at $13.68 a share. 

Fisher & Paykel Healthcare Corp sits in the ASX 200 index with a value of around $7.87 billion. The company designs and manufactures products to treat sleep-disorder breathing conditions. Its products are sold in over 120 countries. 

The company is trading on a PE of about 43 which is somewhat below Cochlear Ltd (ASX: COH) which trades on a PE of around 50.

For FY2018 the company reported gross revenue of NZ$981 million and a gross margin of NZ$650.4 million or 66.3% of sales. Net profit after tax increased from 2017 by 19.4% to NZ$190.2 million. 

I think investors are looking closely at the significant growth opportunities for this company in the years ahead for both homecare and hospitals.

For FY2018 the company reported 27% growth with new applications such as the Optiflow nasal high flow therapy – used in hospitals to treat a broad range of respiratory complications. The ageing population particularly in western countries will result in an increasingly large market for respiratory devices.

In the US alone, the percentage of those aged 65 years and above is likely to increase by 80% over the next 20 years. 

Asia only accounts for about 18% of the revenue base currently and this market should present numerous growth opportunities in the years ahead. In China alone, respiratory disease is one the leading causes of death. The country is expected to report an annual 800,000 lung case diagnoses by the year 2020.  

Foolish takeaway

With healthcare stocks one of the market's best performing categories in 2018, I think all healthcare stocks with consistent earnings growth, strong balance sheets, solid net cash flow and a clearly defined strategic path deserve investors' close inspection.

I would expect Fisher and Paykel to be a great buy and hold investment which should outperform the market if current growth levels are maintained. 

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Iress Ltd (ASX:IRE) is mid-cap company valued at about $2.1 billion providing technology solutions for the financial markets, wealth management and mortgage sectors. 

The company's shares have taken a hit in the past 12 months due to higher costs associated with the integration of acquired businesses in the UK. They were down to a low of $9.17 in April. 

With no news out of the company, I think investors are re-examining the company. The 2017 results disclosed a 10% increase in group revenue from the previous financial year to $430 million.

The 2018 results should see the acquisitions bedded down and a material increase in profit from 2017. What I like about IRESS is the substantial investment in AI which would be expected to pay off down the track, together with its market dominance – IRESS commands about 60% of its market in Australia. 

Foolish takeaway 

Look for companies with solid revenue growth which have been oversold due to lower-than-expected profitability or underwhelming earnings guidance. Often newly-acquired businesses take a good 12 months to bed down. An example of this is WiseTech Global Ltd (ASX: WTC) which was oversold to $9.49 in April (closing today at $16.76). 

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Xero Limited (ASX: XRO) shares climbed to a record high recently – at $47.81 a share valuing the business at more than $6 billion.  

Xero is a cloud software company providing SaaS solutions for small to medium-sized businesses. In the latest financial results, the company announced a 38% increase in revenue together with its first ever positive EBITDA of $26 million.  

Investors clearly prefer Xero's decision to seek global growth over rival Myob Group Ltd's (ASX: MYO) decision to remain largely focused in Australia with a rather old-fashioned hybrid mix of installation software and cloud data retention. 

Here are two reasons why I think the upward momentum in Xero's share price should continue. 

Valuation 

The numbers from the annual report for year ended 31 March 2018 are impressive –  1.4 million subscribers with an annual growth rate of 33%. Free cash flow of $41.2 million – an increase of $46 million from 2017. 

Net cash receipts per subscriber for 2018 were $29. This is expected to increase, however for the valuation I assumed this remains constant with a 33% increase in year-on-year subscribers. This should be achievable with markets in Europe and North America still largely untapped. 

I calculate a valuation at about $57 per share on a discounted cash flow basis, provided the company continues to grow at the same rates over the next 5 years. 

Growth 

What is exciting about Xero is the truly global ambition. In the UK over the past year it has added 312,000 subscribers resulting in 47% subscriber growth annually. The opportunities are still massive for Xero in the Americas and Europe.  

The subscriber base in the United States is only 132,000 at March 2018, whilst the total addressable market in terms of small to medium sized businesses has been estimated at about 28 million.  

In Australia and New Zealand, Sage and MYOB have previously dominated the important accountants and tax agents market with practice management software.

Xero is aggressively targeting this market with Xero Practice Manager, Xero Tax and Xero Workpapers, and the capture of this market should continue to grow exponentially over the next few years. 

Foolish takeaway 

There are very few opportunities to invest on the ASX in SaaS businesses that are best in market with global opportunities. As with Facebook and Google, Xero is shaping up to be the dominant global player in its business. 

The scalability with Xero is also impressive with more than 700 apps now working in conjunction with the company to provide ad-on services. These apps provide a stickiness to the software and ensure its wide functionality over many different industries. 

I cannot see any downside and only upside to the Xero share price in the next few years, although remember Xero is yet to make a profit and as such carries considerable risks around its operational performance, competition, and current valuation. The value of any invesment in Xero shares could move considerably up or down therefore.

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