It looks like it might be the time for enterprising investors to get busy and start snapping up some appealing smaller companies that have been heavily sold-off during the recent market decline.
Over the past month the S&P/ASX 200 (INDEXASX: XJO) has slid 6.1%, thereby wiping out practically all of the gains achieved over the last 12 months.
One of the "risks" of investing in smaller capitalisation stocks (small caps) is that they are more volatile. Because they are smaller, less liquid and often more exposed to earnings shocks, their share prices tend to swing more widely than the index and their larger peers.
Herein lies the opportunity
One of the benefits of this scenario is that during market turmoil, some small caps generally experience significant falls perhaps for no other reason than lack of liquidity – not because of any underlying threat to their business outlook.
Investors watching this sector closely can often identify superb buying opportunities during these periods. Here are three companies with decent earnings growth prospects which are already down over 10% in the last month.
Donaco International Ltd (ASX: DNA) is now down 11.1% in one month despite the casino operator passing a milestone which was the 'soft' opening of its newly renovated Vietnamese hotel and casino. Having completed development, Donaco is now in the process of boosting visitor numbers to its venue which should in turn lead to a boost in revenues and earnings.
McAleese Ltd (ASX: MCS) only listed less than a year ago but it has been nothing short of a disaster for shareholders. Despite all of the company specific problems, McAleese does still operate a leading road haulage transport business. Debt levels are elevated which is a concern but with the stock sinking to a new all-time low and down 26.3% this month alone, the stock could suit investors prepared to take higher risks.
IBuy Group Ltd (ASX: IBY) owns and operates e-commerce websites in six Asian countries – the sites specialise in providing flash sales to customers. Like McAleese, iBuy has been listed on the ASX for less than a year and the initial share price performance has also been dismal with the stock hitting a new all-time low this week and down 33.3% over the last month. Although the company is yet to turn a profit, revenues and turnover are growing quickly and investors looking for a high growth Asian story could find the current pricing of iBuy's shares appealing.
