Morgans expects big returns from these small cap ASX shares

At the small end of town, Morgans is tipping big returns from these shares.

| More on:
A bearded man holds both arms up diagonally and points with his index fingers to the sky with a thrilled look on his face over these rising Tassal share price

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

If you have a higher than average risk tolerance, then having a little exposure to the small side of the market could be worth considering.

That's because if you can catch a small cap ASX share on its way to becoming a mid or large cap, the returns could be mouth-watering for your portfolio.

With that in mind, let's take a look at a couple of small cap ASX shares that Morgans has on its best ideas list this month. They are as follows:

PeopleIn Ltd (ASX: PPE)

Morgans thinks that this workforce management company could be a small cap ASX share to buy right now.

The broker currently has an add rating and $4.90 price target on its shares. This implies potential upside of almost 70% for investors.

Its analysts believe its shares are cheap at the current level. Particularly given the company's strong earnings growth potential and defensive qualities. It commented:

PPE is trading back at $3.00/sh and a sub-10x PER. We continue to think it looks cheap for a company that has grown earnings at c.20% year in year out – company guidance has EBITDA growing 35% in FY23. We are buoyed by management's focus on making the business more defensive, and capable of navigating any potential downturn. The opportunity under the Pacific Australia Labour Mobility (PALM) scheme is massive and following the Federal Government's Job Summit, there has rarely been more focus on increasing migration. With Covid all but done PPE's healthcare division could bounce back and drive earnings growth over the medium term. With $30m of spare debt capacity, management are well placed to deliver growth into FY24, if they can land a deal in the next 18 months.

Tourism Holdings Ltd (ASX: THL)

Tourism Holdings is a global tourism operator and the largest commercial recreational vehicle (RV) rental operator in the world. It merged with Apollo Tourism & Leisure late last year, creating a multi-national, vertically integrated RV manufacturing, rental, and retail business spanning motorhomes, campervans, and caravans.

Morgans has the company's shares on its best ideas list with an add rating and $5.15 price target. Based on the current Tourism Holdings share price of $3.88, this implies potential upside of 33% for investors.

The broker believes Tourism Holdings is well-placed for growth in the coming years thanks to the travel market recovery from COVID. All things considered, the broker feels its shares are too cheap at current levels. It commented:

THL recently reported a very strong 1H23 result which materially beat expectations. Pleasingly and reflecting the strong operating conditions to which it is leveraged to, it also upgraded its FY23 NPAT guidance. With all markets now reopened, THL has strong leverage to a tourism recovery over the next few years. In addition, it has further leverage from extracting the material synergies with ATL. We continue to believe that the merger synergies are conservative and will be upgraded over time. The prospects for the merged group are so strong that THL will now resume dividends with the FY23 result (6-12 months earlier than expected). With the stock trading on an FY25F high single digit PE, we think this is too cheap for the largest commercial, global RV rental business in the world. Importantly, THL is run by an impressive management team which have a strong track record.

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 Peoplein. The Motley Fool Australia has recommended Peoplein. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Small Cap Shares

Three analysts look at tech options on a wall screen
Technology Shares

Why did this small-cap ASX tech stock just explode 39%?

Investors are piling into the ASX tech stock on Wednesday. But why?

Read more »

Siblings jumping on a trampoline.
Broker Notes

3 ASX small-cap stocks to buy for 2025: brokers

Here are 3 ASX small-cap shares capturing the attention of professional brokers this week.

Read more »

A man sits in a chair hunched over a laptop and covered head to toe in frozen icicles to represent Envirosuite's trading halt
Small Cap Shares

ASX small-cap stock halted amid global semiconductor deal

Investors are awaiting details of a capital raise.

Read more »

A young man sitting at an outside table uses a card to pay for his online shopping.
Small Cap Shares

Why I think this ASX small-cap share is a bargain at $1.20

This retail stock could be a bargain buy right now.

Read more »

a young woman raises her hands in joyful celebration as she sits at her computer in a home environment.
Small Cap Shares

These small cap ASX shares could rise 20% to 50%

These shares could be destined to deliver big returns over the next 12 months according to brokers.

Read more »

three children wearing superhero costumes, complete with masks, pose with hands on hips wearing capes and sneakers on a running track.
Small Cap Shares

3 ASX small-cap shares to buy now: brokers

The ASX Small Ordinaries Index has lifted 6.5% over the past six months alone.

Read more »

A woman jumps for joy with a rocket drawn on the wall behind her.
Small Cap Shares

This ASX small cap stock just rocketed 40%! Here's why

Let's see what is getting investors excited this morning.

Read more »

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

Down 72% form its highs, why this ASX small-cap stock is now 'a bargain'

Everyone likes a bargain.

Read more »