If you're interested in adding some exposure to the small side of the market to your portfolio then you might want to take a look at the shares listed below.
Here's why these ASX small caps have been tipped as buys:
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Nitro Software Ltd (ASX: NTO)
Nitro is a global document productivity company. It helps businesses of all sizes eliminate paper, accelerate business processes, and drive digital transformation. This is achieved by providing PDF productivity and eSigning for all in a single, affordable solution.
At present, Nitro is helping drive digital transformation across more than 11,000 businesses globally. This includes 68% of the Fortune 500 and three of the Fortune 10.
It was a very strong performer during FY 2020. For the 12 months ended 31 December, Nitro reported a 64% increase in annualised recurring revenue (ARR) to $27.7 million. This was driven by increasing demand for its popular Nitro Productivity Suite.
Positively, similarly strong growth is expected in FY 2021. Management's guidance for the year ahead is ARR in the range of $39 million to $42 million. This will mean year on year growth of 41% to 51.6%.
One broker that is a fan is Morgan Stanley. Its analysts currently have an overweight rating and $3.70 price target on the company's shares. This compares to the current Nitro share price of $2.63.
Volpara Health Technologies Ltd (ASX: VHT)
Another small cap ASX share to watch is Volpara. This healthcare technology company's VolparaEnterprise software solution is a cost-effective, mission-critical tool that helps clinics deliver the highest-quality breast imaging services.
Volpara also has a growing number of add-on solutions that work with VolparaEnterprise and are expected to boost its average revenue per user (ARPU) metric in the future. These include its VolparaDensity, VolparaDose, VolparaPressure, VolparaLive, and VolparaPositioning products.
Management estimates that its whole suite of products equates to US$10 per user, which is seven times greater than its current ARPU of US$1.40. Combined with further market share gains, this could support significant revenue growth in the future.
Morgans is positive on Volpara's future. It currently has an add rating and $1.94 price target on its shares. This compares to the latest Volpara share price of $1.23.
