Why analysts rate these small cap ASX shares as buys

Analysts rate these small cap ASX shares highly…

| More on:
Woman cheering in front of laptop as she watches the Metal Hawk share price rise

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

While small cap ASX share carry more risk than their larger rivals, the potential returns on offer makes it worth considering including one or two in a balanced portfolio if your risk profile allows.

But which small cap shares should you be looking at? Two that could be worth getting better acquainted with are listed below. Here's why:

Avita Medical Ltd (ASX: AVH)

The first small cap to look at is Avita Medical. It is a global regenerative medicine company best known for its Recell system. This is a spray-on skin treatment used for burns victims.

However, Avita isn't settling for this and is seeking to expand the use of the Recell system. It is aiming to treat vitiligo and is working on a project with Houston Methodist Research Institute on reversing cellular ageing.

While demand for the Recell system softened during the pandemic due to lower burn incidents, the reopening of the US economy has let to demand picking up. So much so, the company recently upgraded its FY 2021 guidance.

This went down well with analysts at Bell Potter. Last week the broker retained its speculative buy rating and $9.80 price target on its shares. This compares to the latest Avita Medical share price of $5.80.

Booktopia Group Ltd (ASX: BKG)

Another small cap to look at is Booktopia. It is the largest Australian-owned online book retailer by market share. At the last count, the company was selling one item every 4.7 seconds, shipping a total of 6.5 million items during FY 2020.

Pleasingly, the company has built on this materially in FY 2021 thanks to the shift to online shopping and its new distribution centre. For example, in the first half, the company shipped a total of 4.2 million units during the six months. This was up 40% on the prior corresponding period and underpinned a 51.1% increase in revenue to $112.6 million and a 502.3% jump in underlying EBITDA to $8 million.

One broker that is tipping further strong growth in the future is Morgans. Its analysts believe Booktopia is well-placed to win market share and realise further scale benefits.

The broker has an add rating and $3.54 price target on the company's shares. This compares favourably to the current Booktopia share price of $2.57.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Avita Medical Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Booktopia Group Limited. The Motley Fool Australia has recommended Avita Medical Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Small Cap Shares

A female ASX investor looks through a magnifying glass that enlarges her eye and holds her hand to her face with her mouth open as if looking at something of great interest or surprise.
Small Cap Shares

3 of the best small cap ASX stocks to buy now

Bell Potter thinks these shares are among the best to buy at the small end of town.

Read more »

A bland looking man in a brown suit opens his jacket to reveal a red and gold superhero dollar symbol on his chest.
Small Cap Shares

Is this the best small cap stock on the ASX right now?

Bell Potter is very bullish on this small cap. Let's find out why.

Read more »

A man clenches his fists in excitement as gold coins fall from the sky.
Small Cap Shares

3 top small cap ASX shares that brokers are tipping for big things

Let's see which small caps are being tipped as buys by brokers.

Read more »

A little girl wearing wonky glasses checks out what's happening in the world on a mobile phone.
ETFs

Why ASX ETFs are a threat to small-cap funds

Experts are concerned about investment capital inflows.

Read more »

Kid putting a coin in a piggy bank.
Small Cap Shares

2 ASX small-cap shares to buy with big potential

Experts reckon these small businesses have big potential.

Read more »

A person with a round-mouthed expression clutches a device screen and looks shocked and surprised.
Small Cap Shares

Why this ASX small cap stock just rocketed 145%

Why are investors getting excited about this stock? Let's find out.

Read more »

A man slumps crankily over his morning coffee as it pours with rain outside.
Small Cap Shares

Why this Telstra-linked ASX small cap stock just crashed 90%

This small cap is having a very bad session. What's going on?

Read more »

A young boy wearing a hat, sunnies and striped singlet looks fierce and flexes his arm in victory.
Small Cap Shares

The ASX small-cap stock trading at 'half of the earnings multiple of industry leaders'

A leading fund manager sees a lot of untapped value for this soaring ASX small-cap stock.

Read more »