Small-Cap Stocks: Principles For Small Cap Success

  • Oct 22, 2019 AEDT
  • Team Kalkine
Small-Cap Stocks: Principles For Small Cap Success
What are Small-Cap Stocks?

Small-cap stocks are the stocks, which have smaller market capitalisation or otherwise said as a small-sized company. Although small-cap stocks may not be on the priority of an investor as the market’s large-cap stocks, however, the trending small-cap stocks on a stock exchange carry the potential to provide good returns. Some of Australia’s most popular company brands form the part of best small cap stocks on ASX 2019, which we would discuss later in the article.

Before discussing the ASX listed small-cap stocks, let’s get to know the principles for small cap success.

Principles for Small-Cap Success

Develop knowledge base

The basic principle of making any type of investment is to develop a knowledge base and have clarity about the know-how of the investment. Also, investment in a stock market requires knowledge of the market functioning, as well as the type of stocks in which potential investment is to be made.

For a small-cap investor, it is essential to develop knowledge of the market trading, related small-cap stocks and the company’s future project related information that can help to minimise the investor’s risk.

Framing a strategy

Strategising your investment in a small-cap stock can help you save your money by avoiding committing basic mistakes. The knowledge developed through market research by the investor forms the basis for developing a trading strategy.

The fluctuations in the stock prices may be tempting at many moments, but the investor needs to hold firmly to the strategy developed at the beginning of the investment. Small caps may not be that attractive initially but carry a huge potential of giving good returns.

Diversified investment portfolio

Diversification helps to increase the variety in an investor’s portfolio while minimising the risk of losing all the money in one go.

As an English proverb reads:

“It is the part of a wise man to keep himself today for tomorrow, and not venture all his eggs in one basket”

The stock market is highly volatile and dynamic, resulting in unexpected and unforeseen market fluctuations. These fluctuations can help you make capital gains with equal chances of making you lose all your money.

Patience is the Key

Mastering patience and holding onto the long-term strategy rather than falling for short-term and uncertain gains can damage the momentum towards the long-term investment strategy. The deviation of the focus and losing patience for short-term gains is very common among new and young investors.

The fear of losing money, coupled with anxiety about the forecasted investment results makes the investor lose patience. However, carefully investing in the small-cap stocks that have a promising future and huge potential for capital gains, may result in a successful small-cap investment.

No space for emotions

Effective management of money is directly related to the management of the investor’s emotions. An investor making an impulsive decision, or a decision based on the emotions, has high chances of losing his money.

Being greedy is also not a part of a successful small-cap investment. Abstaining oneself from getting carried away during the extreme market situations and getting control of one’s behaviour and emotions is an imperative principle.

Let’s take a look at the recent updates from the ASX listed small-cap stocks.

Linius Technologies Limited (ASX: LNU)

LNU’s License Agreement with Essendon Football Club

Linius Technologies Limited (ASX: LNU) recently launched the commercialisation of its Sports Club Solution in Australia and Europe by entering into a License Agreement with Essendon Football Club as the first customer of the Linius Sports Club Solution and appointed SwanBay as the distribution partner in Europe.

Notable Highlights from the agreement are:

  • Essendon Football Club (EFC) has become the first AFL Club to sign up to the Linius Sports Club Solution;
  • The Linius Sports Club Solution focuses on delivering operational and commercial benefits for a sporting organisation’s proprietary media content;
  • Swanbay, a leading video platform provider and Linius distribution partner in Europe, are rolling out the solution to sports clubs across Europe;
  • Swanbay has completed the integration of Linius’ personalisation technology into their Global Content Distribution Platform (GCDP);
  • Linius will commence recognising revenue from these deals in the December 2019 quarter.

On 22 October 2019, LNU stock was trading at a price of $ 0.048, up 6.667% (at AEST 2:05 PM), with a daily volume of ~ 2,641,492 and a market capitalisation of approximately $52.26 million. The stock has a 52 weeks high price of $0.066 and a 52 weeks low price of $0.026 with an average (year) volume of ~2,057,496. Over a period of last six months, LNU stock has provided 28.57% return.

Select Harvests Ltd (ASX: SHV)

Being a fully integrated almond business, Select Harvests Ltd (ASX: SHV) consists of orchards, primary processing, secondary processing, trading and consumer products.

SHV witnesses yields above industry standard for 2019

According to the company’s release, SHV witnessed yields above industry standard for 2019 while exceeding the previous forecast. The processing of the crop at SHV’s Carina West Processing facility at higher rates of efficiency has contributed to fresh sorting technology and an additional focus on processing line performance by staff.

At an estimated pool price of $8.60-$8.70/kg, the current contracted sales, actual sales and internal commitments amount to around 80% of the projected crop.

On 22 October 2019, SHV stock was trading at a price of $ 7.855, marginally up by 0.448% (at AEST 2:09 PM), with a daily volume of ~ 86,126 and a market capitalisation of approximately $748.66 million. The stock has a 52 weeks high price of $ 8.100 and a 52 weeks low price of $ 5.130 with an average (year) volume of ~153,646. Over a period of last six months, SHV stock has provided 15.85% return.

Opthea Limited (ASX: OPT)

OPT recently obtained $14.6 mn research and development tax credit from the Australian Taxation Office as a refund for R&D costs sustained in the FY 2018-2019 period.

OPT’s Chief Executive Officer & MD, Dr Megan Baldwin stated that R&D tax incentive credit amounting to $14.6 million boosted OPT’s cash balances to more than $30 million. The company would make a contribution to the implementation and delivery of results from its clinical trials related to OPT-302 in wet AMD and DME.

OPT stock gives 400.71% return in the past 6 months

Figure 1 OPT Stock Performance (Source: ASX)

On 22 October 2019, OPT stock was trading at a price of $ 3.76, with a daily volume of ~421,645 and a market capitalisation of approximately $ 883.52 million. The stock has a 52 weeks high price of $ 4.150 and a 52 weeks low price of $ 0.530 with an average (year) volume of ~ 1,513,454. Over a period of last six months, OPT stock has provided remarkable return of 400.71%.

Straker Translations Limited (ASX: STG)

As an emerging leader in AI data driven translation platform, Straker Translations Limited (ASX: STG) is based in New Zealand and has developed a hybrid translation platform, which utilises a combination of AI, machine learning and a crowd-sourced pool of freelance translators.

STG partnered with AppTek

The company recently partnered with AppTek with foresight to expand customer base and enhance localisation. The partnership is anticipated to offer:

  • Key strategic partnership with a world-leading automated speech recognition and neural machine translation technology company.
  • Automating the sub-titling and closed captioning process, the partnership provides a unique solution at scale for global media companies.
  • Enhances Straker’s media localisation offering, which is the fastest growing segment of the global translation industry.
  • Expands Straker’s customer base and supports additional services on Straker’s RAY AI platform.

On 22 October 2019, STG stock was trading at a price of $ 1.835, with a daily volume of ~42,485 and a market capitalisation of approximately $97.48 million. The stock has a 52 weeks high price of $2.150 and a 52 weeks low price of $1.170 with an average volume of ~ 58,031. Over a period of last six months, STG stock has provided 31.43% return.


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