There could be some very big returns on offer at the small side of the market according to analysts at Bell Potter.
For example, the broker has just reaffirmed its buy ratings on small cap ASX shares Genetic Signatures Ltd (ASX: GSS) and Clarity Pharmaceuticals Ltd (ASX: CU6).
In respect to Genetic Signatures, it is a molecular diagnostics company focused on the development and commercialisation of its proprietary platform technology, 3base. It is used to improve the diagnosis of infectious diseases.
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Why is it a small cap ASX share to buy?
Bell Potter notes that the small cap recently conducted a $15.9 million capital raising. This will be used to support a commercial launch in the United States. It believes this leaves the company well-positioned to hit the ground running if the FDA approves its product. It said:
GSS are in the process of providing Additional Information to the FDA following a 60- day Substantive Review of the GI Parasite Detection Kit, a normal course of proceedings for 510(k) applications such as this. We remain confident in the likelihood of clearance, most likely around May 2024. There are 6 US lab sites that have already installed and are evaluating the product and these labs could swiftly convert to paying customers following FDA clearance.
We had assumed an FY24 capital raise so there were only minor changes in our valuation due to the number and price of new shares issued. Valuation is now $0.80 down from $0.83. We maintain a BUY (speculative) recommendation and see positive risk-reward ahead of the major FDA catalyst. The improved balance sheet position alleviates near-term funding concerns and provides ample cash runway for FDA clearance and US sales ramp up.
Bell Potter has a speculative buy rating and 80 cents price target on its shares. This suggests a potential upside of approximately 84% for investors over the next 12 months.
Another small cap to buy
Bell Potter also believes that Clarity Pharmaceuticals shares can rise strongly from current levels.
This week, the broker put a speculative buy rating and $3.00 price target on the radiopharmaceutical company's shares. This implies a 36% upside for investors from current levels.
Its analysts are very positive on the small cap ASX share's SAR-bis-PSMA platform. It explains:
Clarity's SAR-bis-PSMA platform is emerging as a highly differentiated platform for the imaging and treatment of mCRPC. The IP protection is top shelf compared to existing platforms and combined with the emerging clinical data, we believe the company has a promising future. Earnings adjustments include increases to R&D spend over the forecast period following commencement of approval studies. Valuation is increased from $1.70 to $3.00.
Finally, it is worth highlighting that these are speculative buy ratings. This means that they may only be suitable for investors with a high tolerance for risk.
