S&P/ASX Small Ordinary (ASX: XSO) represents the small capitalization component of the Australian stock market. It includes all companies in the S&P/ASX 300 but excludes companies in the S&P/ASX 100. Small-cap stocks refer to companies with a market capitalization between $250 million and $2 billion.
The index has delivered a potential absolute return from 27 March 2020 of $2,013 to 3 January 2024 of $2,880, which is approximately 43%.
Highly speculative traders are looking to buy small-cap ASX shares in Australia, which has the potential to generate particularly strong investment returns. Small caps are risky, but some of the best ASX small caps also have the potential to turn small investments into larger ones.
Fig: Comparable charts of ASX: XSO with RDY, GNG, and VSL.
Source: - Yahoofinance.com
Reference: *All Data has been sourced from Company announcements and Refinitiv, Thomson Reuters, Australian government.
[Note]: The market cap and the share price of the selected ASX companies below are mentioned as of 3 December 2023.
Readytech Holdings Limited (ASX: RDY)
Market capitalization: $393.74 million
Share Price: $3.37
ReadyTech's accomplishments are noteworthy and demonstrate its financial strength. The company's EBITDA-to-cash conversion rate increased significantly from 85.3% in FY2022 to an astounding 95.4% in FY2023. This demonstrates sound financial management by showing how well it converts its earnings into actual cash. Furthermore, ReadyTech saw an astounding 74% increase in average income per user, demonstrating its capacity to get more value out of its clientele. The $26.6 million in cash that the corporation now has on hand is indicative of its stability.
The company has acquired high-value enterprise customers in all segments as a result of its strategic efforts. ReadyTech is well-positioned to target serviceable markets, surpassing $970 million in each area, thanks to its well-planned track record and strategic investments.
GR Engineering Services Limited (ASX: GNG)
Market capitalization: $382.70 million
Share price: $2.32
GR Engineering Services Limited expects the pipeline to grow rapidly and currently maintains a strong position in the contract order book for design and build work and in the near-term pipeline for the financial years 2024 and 2025. The company is also currently working on a large volume of research covering a wide range of products and geographies. With a strong project portfolio and a high level of research, the medium- and long-term visibility of the project remains high. GR Engineering plans to provide revenue guidance for fiscal 2024 at its 2023 annual meeting. The company's strong balance sheet bodes well for its ability to leverage capital to execute on its portfolio submission. The company's current customers include BHP, K92, Santos, Chevrolet, Kimberley, and IGO Ltd., etc.
Vulcan Steel Limited (ASX: VSL)
Market capitalization: $1 billion
Share Price: $7.62
The company’s monthly ATAs for pre-existing business averaged 3% higher in May to July 2023 compared with the same period in 2022. The benefits from the aluminium integration programme are expected to be more evident in the company’s financial performance in the 2H, FY2024, which includes the following action plan: ongoing sharing of Vulcan’s culture with new team members; the transition of the aluminium unit to the company’s business model and service mindset; growing the customer base; and Intensifying customer engagement and continuing the review of operational and freight logistics Productivity and cost efficiency across the whole company will remain a major focus to reduce the increase in operating costs.
Frequently Asked Questions (F.A.Q)
Is buying ASX small caps preferable right now?
It just depends on one's personal goals and risk tolerance. Investing in small-cap stocks is risky during a market correction or when the economic outlook appears very bleak. It would be a good idea to choose companies with good fundamentals and better future prospects.
Are ASX small caps a risky venture?
Most likely, small-cap companies will have a high beta that suggests stocks bear high-risk components. Investing in such stocks can drive a roller coaster ride and create possible failure moments. There are several factors, such as unstable fundamentals, poor economic conditions, and companies mainly facing financial crises.
What companies are in ASX small cap?
• Readytech Holdings Limited (ASX: RDY)
• Vulcan Steel Limited (ASX: VSL)
• GR Engineering Services Limited (ASX: GNG)
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