When is The Best Time to Invest in ASX Small-Cap Stocks?

  • Nov 04, 2019 AEDT
  • Team Kalkine
When is The Best Time to Invest in ASX Small-Cap Stocks?

Stock markets provide a platform to grow one’s money, as over time listed companies tend to grow in value, especially, investments in stable companies that are able to grow and tend to make profits for investors. Putting one’s money across different stocks allows for expansion of wealth by leveraging growth in different sectors of the economy. Small-cap stocks belong to companies with market capitalisation between $ 250 million and $2 billion. There are compelling reasons as to why they deserve a representation in the portfolios. ASX small-caps offer a great investment avenue, especially for building long-term wealth as:

  • Larger companies have limited organic growth potential, as they have surpassed their accelerated growth phase and now hold a significant market share. Small companies, on the other hand, have the ability to expand in ways that are impossible for mature companies, giving the investor a chance to enjoy the benefits of a growing younger firm as it introduces different products and explores new horizons. Market participants worldwide often talk about spotting the next Google, Microsoft or Wal-Mart, as they all started small.
  • Leveraging the market inefficiencies- With little analyst coverage and attention from experts, limited information is available about small caps, increasing the probability of improper pricing. Thus, investors may use this opportunity to earn a great return on their investments and leverage the inefficiencies in market pricing.
  • Financial institutions like mutual and hedge funds do not heavily invest in small caps due to certain rules and regulations, thus reducing the impact on the stock pricing.

Having said that, the most opportune time to allocate capital to small caps, as historically proven profitable, may actually be an economic downturn or when the market appears to have been down for a long period of time. As the interest rates start to rise again usually at the beginning of an economic recovery, or at a time when market participants speculate that the central banks would not slash interest rates further, small-cap stocks are believed to flourish in such a rising rate economic environment.

In other words, as an economy emerges from recession, small companies tend to bounce back more swiftly than the larger ones as they are more prompt with introducing new products and services and managing their market launch in the absence of complex management structures and potential obstructions of the kind faced by large companies.

However, rule of thumb does not apply in the highly volatile stock market and investors must engage in due diligence to decide the best course of action.

[New to Small- Cap Industry Investment? Here's Your One Stop Guide to Investing in Small Cap Stocks]

Let’s look at some of the best small-caps on the ASX that the investors may fancy.

PPK Group Limited (ASX: PPK)

PPK Group Limited (ASX: PPK), listed on ASX in 1994, is focused on manufacturing, support and distribution of underground coal mining equipment. The Group retained its investments in industrial properties, and manufacturing & distribution of acrylic diffusers and thermoplastic sheeting and acquired Rambor Mining Equipment Business. Thereafter, PPK expanded significantly into the mining technology and services sector in 2014, with a number of acquisitions over the next two years and divested its property assets with the last sale in 2018. At the end of 2018, PPK diversified into a new technology commercialisation opportunity along with Deakin University with the acquisition of 50% of BNNT Technology Limited.

Business Performance: For the year ended 30 June 2019, PPK Group recorded a 17% increase in its revenue from ordinary activities to AUD 40.932 million while the company’s profit after tax skyrocketed by 215% to AUD 1.80 million, after incurring approximately AUD 0.575 million of one-off costs. PPK continues to focus on further building its brands including CoalTram, Rambor and Firefly along with the company’s strong reputation for sales and servicing these brands, and other OEM products.

A final dividend of AUD 0.01 was also paid to the shareholders relative to the six months to 30 June 2019. The Group maintained a robust working capital position with current assets of AUD 21.747 million. Of the total current assets, AUD 11.496 million is highly liquid, and a net working capital position of AUD 13.235 million. The year FY20 has begun on sound note for PPK.

iSignthis Ltd (ASX: ISX)

iSignthis Ltd (ASX: ISX), based in Melbourne, Australia, offers distant identity verification and payment authentication services along with transactional banking and payment processing for merchants and e-money deposit taking through its two solutions - ISXPay® and Paydentity™.

Business Performance: As per iSignthis’ Operational Update for the quarter ended 30 September 2019, the Actual Annualised (EU+AU Paydentity Ecosystem) GPTV amounted to over AUD 1.9 billion, marking an increase of 360% from 30 June 2019 (prior quarter results).

The company reported that its actual processed transactional volumes within the EU + AU Paydentity Ecosystem performed really well, and continued to do so, in accord with the expectations as new business customers are acquired and multiple revenue lines drive growth, including card acquiring and eMoney accounts growth.

Also, during the concerned period, the approvals team worked diligently through the expanding pipeline of business customer applications which led to continued growth in group approvals to 304 from 210 as at 30 June 2019, depicting an increase of 45%.

iSignthis, on 1 November 2019, announced the appointment of Elizabeth Warrell, its Group CFO, as Joint CS, with Mr Todd Richards.

AVITA Medical Ltd (ASX: AVH)

Regenerative medicine company, AVITA Medical Ltd (ASX: AVH) has a technology platform well positioned to meet the unaddressed medical needs in conditions like burns, chronic wounds, and aesthetics indications.

Business Performance: The company recently reported financial results for the fiscal first quarter ended 30 September 2019, posting AUD 4.6 million US sales of RECELL System, representing 60% quarter-over-quarter growth after the RECELL System has been actively promoted for nine months in the United States following approval by the Food and Drug Administration (FDA) on 20 September 2018, and the full nationwide commercial launch in January 2019.

AVITA Medical’s commercial achievements since US market entry include-

  • Orders placed by 56 of 132 US burn centres for RECELL.
  • More than 50% of burn surgeons and burn centres in the United States received training on the RECELL System.
  • AUD 10.8 million recorded in US sales to-date.

AVITA Medical also listed ADRs on the Nasdaq Capital Market. Trading under the ticker “RCEL” started on 1 October 2019. Moreover, the company was added to S&P/ASX300 index, measuring the performance of the largest three hundred companies by market cap on the Australian Securities Exchange.


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