ASX shares: Invest in these 2 stocks for a legit chance at $1 million

The key to achieving a $1 million portfolio is finding big compounding potential in small places…

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Key points

  • Building a $1 million portfolio requires companies with exceptional growth potential if you're starting with a small investment
  • Research suggests small-cap shares are the most likely subset to yield returns greater than 1,000%
  • There are two companies on the ASX that I believe meet the conditions needed to realise life-changing returns

A $1 million portfolio might seem like a far-off dream unless you start by investing an already large sum of money. Though, picking ASX shares with the potential for returns greater than 2,000% over the long term makes this dream much more achievable.

I know… a 20-bagger can sound outlandish — but, rest assured, it is entirely possible. In fact, 14 ASX-listed companies have seen their share prices skyrocket more than 2,000% between 2015 and now. You might recognise some of the ASX shares that fall into this bucket — including Hub24 Limited (ASX: HUB), Pilbara Minerals Ltd (ASX: PLS), and Pro Medicus Ltd (ASX: PME).

But, to tap into opportunities now to build a $1 million portfolio, I think it's essential to look at the small dogs on the block.

Searching small to make it big with ASX shares

The law of large numbers implies that it can become difficult for big companies to grow at high rates.

Put simply, it is harder to go from $1,000,000 to $2,000,000 than it is to go from $1,000 to $2,000. But in percentage terms, they are the same — both being a 100% increase. Based on this, the greatest growth is plausibly found among the small caps of the market.

Research conducted by Dede Eyesan and Jenga Investment Partners further supports this. In the book titled Global Outperformers, Eyesan looked at companies that returned more than 1,000% during the 10 years between 2012 and 2022.

As shown in the extract above, 97% of global outperformers during the reviewed decade started out as small caps — or even smaller. That is some strong evidence to support the smaller end of the market as the best place to go hunting for a chance at a $1 million portfolio.

Where I'd shoot for a million

There are two ASX shares that I believe tick the boxes needed for massive upside.

Both companies operate in large addressable markets and are in the midst of structural tailwinds. Furthermore, both have delivered exceptional revenue growth, increasing more than tenfold over the past five years.

The first company I'd consider is counter-drone equipment maker Droneshield Ltd (ASX: DRO). A $10 billion market opportunity — combined with a track record of growth, a foot in the door with the world's biggest defence spender, and a geopolitical environment conducive to greater protection measures — Droneshield has a lot to like.

It's still early days. Though, Droneshield's continued product development leads me to believe this company could take a considerable slice of a market that is becoming increasingly relevant.

Shares in the company are already up 88% over the last 12 months.

Created with Highcharts 11.4.3DroneShield PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.com.au

The other ASX share which I think could be primed for remarkable returns is Alcidion Group Ltd (ASX: ALC).

In my opinion, healthcare costs are reaching a breaking point globally. The cost of care is spiralling toward an amount that exceeds what the taxpayer can shoulder. At the same time, the rising cost of living could be forcing more people into the public system.

That's why I think digital patient management solutions — like those provided by Alcidion — are going to become critical to increasing productivity and controlling costs.

The company is not yet profitable. However, revenue has grown at a compound annual growth rate (CAGR) of 69% over the past four years. Given the scalability of its product, attractive profits could be simply a matter of time for this ASX share.

Shares in Alcidion are down 40% over the last 12 months.

Created with Highcharts 11.4.3Alcidion Group PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.com.au

Motley Fool contributor Mitchell Lawler has positions in Pro Medicus. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Alcidion Group, DroneShield, Hub24, and Pro Medicus. The Motley Fool Australia has positions in and has recommended Hub24 and Pro Medicus. The Motley Fool Australia has recommended Alcidion Group and DroneShield. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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