I'm a big fan of small cap shares and believe it is well worth having a little exposure to that side of the market if your risk profile allows it.
This is because the potential returns on offer from small cap shares are vastly superior to those on offer from blue chip shares.
One negative, though, is that small cap shares are certainly riskier than their blue chip equivalents. Which means investors have to choose very carefully when investing in the space.
The good news is that brokers have done a lot of the hard work for you and picked out some to consider. Here are three small cap shares they have recently rated as buys:
LiveTiles Ltd (ASX: LVT)
According to a note out of Citi, its analysts have retained their buy rating and 91 cents price target on this digital workplace platform provider's shares. Although LiveTile's second quarter performance was a touch short of expectations, the broker acknowledges that signing larger customers takes time and appears confident that its outlook remains very positive. Citi expects LiveTiles to achieve annualised recurring revenue of $100 million by this time in FY 2021, up from $22.9 million today. While I think it is a high risk option, I do agree that it could be a good one for patient investors.
Marley Spoon AG (ASX: MMM)
A note out of the Macquarie equities desk reveals that its analysts have retained their outperform rating, albeit with a reduced price target of $1.30 following its quarterly update. According to the note, Macquarie appears pleased to see the global subscription-based meal kit provider report that it sold more than 15 million portions in calendar year 2018. It also re-affirmed its prior guidance to reach profitability on an operating EBITDA basis by 2020. While I like the concept, I'm concerned it could be a fad. In addition to this, I think the recent deal between UberEats and Coles Group Ltd (ASX: COL) could hurt meal kit companies in Australia. In light of this, I intend to avoid its shares.
Zip Co Ltd (ASX: Z1P)
Analysts at Morgans have retained their speculative add rating and increased the price target on this payments company's shares to $1.30 following its quarterly update. According to the note, the broker thought Zip delivered a strong quarter which ticked a lot of boxes. As well as reporting strong top line and transaction growth, Zip reported a reduction in its bad debts. This led to Morgans increasing its estimates to reflect the positive momentum. While not my first choice in the industry, I have been impressed with Zip's progress and feel it could be a good investment option for small cap investors.
