Year 2020 has commenced with quite a lot of opportunities, especially for aggressive investors on account of a developing economy and enthusiasm surrounding items like bitcoin and blockchain.
This year, several factors have enhanced the Australian economy, distinguished by varied services and technology sectors, minimal government debt along with robust economic data. As per media resources, Australia’s economy is expected to reach GDP growth of 2.7% in the coming 5 years on an average annual basis.
Taking into account these aspects, investing in small-capitalization stocks in 2020 should be very appealing. This is because these stocks are usually smaller in size and have more room to expand. Further, the encouraging expansion in the economy will certainly lift its growth.
Why to Invest in Small-Cap?
Given the positive development in 2019, investing in extremely flexible small-cap stocks appears sensible. In comparison to large caps and mid-caps, small caps have more growth opportunities and proposes better returns, particularly over the long term. These stocks are less dishevelled by a worldwide economic instability and depend more on the domestic economy. Small-cap stocks have the potential to rapidly alter direction and capitalize on current prospects due to their small size, ($300 million and $2 billion).
Trade War Dispute: With no indication of any near-term respite from the ongoing U.S.-China Tariff pressure, investors are now slowly moving their focus to smaller local enterprises from large caps companies. It is to be mentioned that a stronger slowdown in worldwide growth would hurt Australia. Businesses could become more hesitant to invest and customers reluctant to spend more. With their lowest coverage to foreign market, small-cap stocks certainly have a relative advantage over large-cap stocks.
Perks of Investing in Small Cap Stocks
4 Top Small-Cap Stocks to Thrive in 2020
Let us concentrate on a number of small-cap stocks, which are expected to garner robust returns for investors in 2020. We have zeroed in four such stocks that are fundamentally strong and have enough room to run.
EML Payments Limited (ASX: EML)
EML Payments Limited (ASX: EML) provides prepaid payment facilities in Australia, North America and Europe. It facilitates to make instant and secure payment solutions that aids customers to connect with each other at any point of time and anywhere.
Financial Highlights from FY19 for the Period Ended June 30, 2019: The company’s Group gross domestic value (GDV) during the period stood at $9.03 billion, soaring 34% year over year. The company reported revenues of $97.2 million, an increase 37% year over year. EBITDA for the period came in at $29.1 million, increasing 40% year over year. The company reported NPAT for the period of $8.45 million, up a massive 283% on a yearly basis. Cash flow from operating activities in FY19 stood at $29.16 million, up from $6.37 million in FY18. Cash outflow from investing activities stood at $49.82 million, while cash inflow from financing activities was $14.74 million in FY19.
Outlook: The company anticipates revenue, EBITDA and NPATA for FY20 to be in the band of $116 million - $132 million, $38.5 million - $42.5 million and $26.2 million - $29.4 million, respectively.
The stock of EML Payments was trading at $4.810 per share on 10th January 2020 (AEDT: 03:41pm), reflecting a decrease of 0.825%. The company has a market capitalisation of $1.58 billion as on 10th January 2020. The total outstanding shares of the company stood at 325.42 million, and its 52-week low and high is $1.353 and $5.00, respectively. The company has given a total return of 69.73% and 236.29% in the time period of six months and one year, respectively.
FlexiGroup Limited (ASX: FXL)
Founded in 1991, FlexiGroup Limited is a provider of a variety of range of finance solutions to consumers and enterprises via a network of retail and business associates.
Financial Highlights for the year ended on June 30th, 2019: Net profit after tax for the period came in at $76.1 million, down 12% year over year. Active customers in FY19 increased 8% year over year and came in at 1.76 million. Retail partners stood at 65,000, an increase of 8% year over year. Transaction volume in FY19 stood at $2.56 billion, soaring 12% on year over year. Receivables stood at $2.64 billion, increasing 11% year over year.
Outlook: The company’s predicts accelerating growth in its business, reducing total costs of the organisation and aims to offer best in class digital platform. In FY20, FlexiGroup anticipates volume to increase at least 15% driven by new product introductions, customer retention and innovative collaborations. The company also anticipates sustaining margin growth in the near-term and to maintain robust return on equity.
The stock of FlexiGroup was trading at $1.965 per share on 10th January 2020 (AEDT: 03:41pm), reflecting an increase of 4.521%. The company has a market capitalisation of $741.46 million as on 10th January 2020. The total outstanding shares of the company stood at 394.39 million, and its 52-week low and high is $0.975 and $2.710, respectively. The company has given a total return of 16.41% and 36.23% in the time period of six months and one year, respectively.
G8 Education Limited (ASX: GEM)
G8 Education Limited is involved in delivering quality care and education services in Singapore and Australia. It is involved in the business of possession of initial education centre franchises and operations, which are owned by the group.
Key Highlights for the First Half of CY19 (Period Ended 30 June 2019): The company reported total revenue of $430.6 million, soaring 8.6% on a yearly basis, backed by robust occupancy, fee increase and acquisitions. Profit for the period stood at $19 million, a decrease of 20% year over year, primarily due to the implementation of the new accounting standard. Underlying EBIT in CY19 stood at $51.6 million, an increase of 7.3% year over year.
Outlook: The company expects the new rostering platform to be finalized in May 2020, which is expected to bring additional wage productivities.
The stock of G8 Education was trading at $1.997 per share (AEDT: 03:40 pm) on 10th January 2020, reflecting an increase of 1.114%. The company has a market capitalisation of $908.85 million as on 10th January 2020. The total outstanding shares of the company stood at 460.18 million, and its 52-week low and high is $1.823 and $3.635, respectively. The company has given a total return of -30.32% in the time period of six months and one year, each, respectively.
HUB24 Limited (ASX: HUB)
HUB24 Limited is involved in offering platform for investment where the consultants and shareholders connect with each other. The company is also engaged in providing of licensee services to financial advisers, software license as well as IT consulting facilities.
September Quarter FY20 Key Takeaways: The company witnessed a year over year increase of 57% in fund under administration (FUA), which amounted to $14.4 billion. The increase in FUA has been encouraged by the introduction of new advisers from current licensee relationships along with broker network. During the quarter, the company reported net inflows of $1,238 million, increasing 94% year over year. Gross inflows for the period came in at $1,673 million.
Outlook: The company anticipates fund under administration to be in the band of $22 to $26 billion by 30 June 2021.
The stock of HUB24 Limited was trading at $11.330 per share (AEDT: 03:41pm) on 10th January 2020, reflecting an increase of 1.161%. The company has a market capitalisation of $703.32 million as on 10th January 2020. The total outstanding shares of the company stood at 62.8 million, and its 52-week low and high is $9.890 and $15.55, respectively. The company has given a total return of 9.80% in the time period of one month.
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