Brokers say these small cap ASX shares are buys

Investors with a higher tolerance for risk may want to take a look at these small caps.

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If you have a high tolerance for risk, then you might want to consider adding some small cap exposure to your portfolio.

But which small cap ASX shares should you buy? Listed below are two that brokers rates very highly. Here's why they are bullish on them:

FINEOS Corporation Holdings PLC (ASX: FCL)

The first small cap ASX share to look at is Fineos. It is a provider of core systems for life, accident, and health insurance carriers globally.

The company currently has a sizeable 7 of the 10 largest group life and health carriers in the US, as well as a 70% market share of group insurance in Australia. It clearly means business!

Goldman Sachs is a big fan of the company and is very positive on its outlook. It recently commented:

Recent industry data points and commentary suggest that demand conditions are normalizing into 2023, with easing wage pressures increasing confidence in FCL's cash break-even trajectory (we now see upside to consensus earnings across FY23-25E). Separately, FCL's closest US comp Duck Creek was taken out for ~2-3x FCL's trading multiple, providing valuation support for the sector.

Goldman has a buy rating and $1.95 price target on its shares.

Volpara Health Technologies Ltd (ASX: VHT)

Another small cap ASX share to watch is Volpara. It is a provider of software that uses artificial intelligence imaging algorithms to assist with the early detection of breast and lung cancer.

Volpara has been growing its top line at a rapid rate in recent years thanks to market share gains and its expanding average revenue per user (ARPU) metric.

Morgans appears to believe that this can continue, particularly given favourably regulatory developments. It said:

After a long wait, the FDA finalised federal legislation for mammography centers to report breast density to patients. This is positive for VHT's FDA cleared AI volumetric density software. VHT also announced a further contract win with Sutter Health for their Risk Pathways product, with an additional TCV of US$900k over 3 years. This expands their existing relationship with Sutter. […] We view both of these announcements as incrementally positive for the company. We see VHT at a critical turning point in the company's trajectory to profitability with improving investor sentiment.

Morgans recently reiterated its add rating and $1.21 price target on its shares.

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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. has positions in and has recommended Volpara Health Technologies. The Motley Fool Australia has positions in and has recommended Volpara Health Technologies. The Motley Fool Australia has recommended FINEOS Corporation. 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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