One overlooked small-cap that has caught my attention recently is aerial mapping business Nearmap Ltd (ASX: NEA). The company has a highly-profitable business in Australia that sells regularly updated high-resolution photomaps to government agencies and small businesses that use them to complete common business tasks.
For example a local council, water, power, security or public transport authority can use the maps to complete urban planning, monitoring, or administrative tasks.
While a private business such as a solar panel, roofing ,or construction company can use the high resolution maps to assess projects, provide quotes, or chase sales opportunities all from the comfort of their office. Evidently this can bring substantial time and cost saving benefits to a business or government agency.
In Australia, Nearmap generated $34.4 million in annualised contracted revenue as at June 30 2016 and continues to grow at strong rates, with it recently raising $20 million from institutional investors at 70 cents per share in order to fund its attempt at cracking what could be a lucrative North American market.
This afternoon the shares closed at 62.5 cents as investors probably worry that the company is set to reveal ballooning costs in the U.S. when it reports its half-year results in February. Still, if Nearmap U.S. is generating strong sales growth all may be forgiven as it is operating in a huge addressable market where success could set the shares flying higher. It also has a scalable business model that operates on high gross profit margins, which means the U.S. business has the potential to send the share price into orbit if successful.
Nearmap though remains a high-risk proposition, although if the shares get significantly cheaper they will start to look good value for investors prepared to take on more risk, as in my opinion this is a rare small-cap that ticks the boxes as a big growth prospect.
Other small-cap tech stocks that have pulled back to more attractive valuations recently include online jobs place Freelancer Ltd (ASX: FLN), or fashionable website Redbubble Ltd (ASX: RBL).
