In the aftermath of earnings season, the team at Goldman Sachs has been running the rule over the small and mid-cap side of the market.
The broker highlights that FY 2023 earnings were "better than feared" and in general, "management teams called out relatively strong demand backdrops despite rising interest rates and concerns regarding a potential economic slowdown."
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Goldman names its top small-cap ASX share
One small-cap ASX share that caught the eye of Goldman during earnings season was Macquarie Technology Group Ltd (ASX: MAQ).
The broker has been positive on the data centre focused technology company for some time and this remains the case today.
In fact, this morning, Goldman has reiterated its buy rating and $77.20 price target on Macquarie Technology's shares and kept the company on its coveted conviction list. This price target implies a potential upside of more than 14% for investors over the next 12 months.
Its analysts highlight that the small-cap ASX share has the potential to deliver significant earnings growth over the next five years. It explains:
While we did not anticipate the short-term re-rating of a number of more cyclically exposed names, our preference remains companies with a clear medium-term growth runway, trading on reasonable valuations, that should continue to deliver strong earnings in a softer economic environment where persistent cost inflation may place greater pressure on margins.
MAQ (Buy, on CL) remains our top pick, with its IC3W capacity upsize demonstrating the positive inflection point in DC demand (catalysed by both cloud and AI), and balance sheet capacity to accelerate DC growth following the June equity raising. MAQ's upcoming IC3W DA approval should serve as a positive catalyst to draw attention to its significant earnings growth over the next 5 years.
