2 compelling ASX small-cap shares this fundie expects to beat the market

Small stocks can make big returns.

| More on:
Two boys in business suits holding handfuls of money

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

The ASX small-cap share space could be a great place to find under-researched but highly potential businesses.

The fewer professional analysts looking at a stock, the higher the chance of that business slipping under the market's radar and being priced too cheaply for its potential.

However, not every small company is destined to become a larger one. Therefore, I think it's essential for investors to be selective about which ASX small-cap shares they buy.

The investment team that manages the listed investment company (LIC) WAM Microcap Ltd (ASX: WMI) has revealed two stocks it considers appealing picks. Let's dive into what those potential opportunities are.

EML Payments Ltd (ASX: EML)

WAM described EML as a global payments company that operates in Australia, the United Kingdom, Europe and the United States.

The EML share price had an exciting November, climbing a hefty 57% during the month, as shown in the chart below.

Created with Highcharts 11.4.3EML Payments PriceZoom1M3M6MYTD1Y5Y10YALL1 Jan 20249 Dec 2024Zoom ▾Jan '24Mar '24May '24Jul '24Sep '24Nov '24Jan '24Jan '24Apr '24Apr '24Jul '24Jul '24Oct '24Oct '24www.fool.com.au

The fund manager noted that business soared after the company held an investor day with EML Payments new management team, which outlined the ASX small-cap share's growth ambitions.

As WAM highlighted, EML set out an FY28 target for earnings per share (EPS) of 13 cents, and an operating profit (EBITDA) margin target of 35%, which "eased market concerns, contributing to an increase in EML Payments' share price".

The investment team concluded their optimistic view on the EML Payments shares with the following:

We remain positive on EML Payments' medium-term plan and see upside to its underlying EBITDA guidance range of $54 million to $60 million in FY25.

Paragon Care Ltd (ASX: PGC)

Paragon Care is an Australian healthcare company that supplies a wide range of medical equipment, consumables, and services to hospitals, aged care facilities, and healthcare professionals.

The Paragon Care share price climbed 19% in November.

WAM noted that the ASX small-cap healthcare share held its annual general meeting last month. At the meeting, chair Peter Lacaze pointed out that the ASX small-cap share has made significant progress on its merger with CH2a "leading Australian integrated distributor and wholesaler of pharmaceuticals, medical consumables and healthcare equipment".

WAM suggested that the approved merger between Chemist Warehouse and Sigma Healthcare Ltd (ASX: SIG) could be positive for Paragon Care if independent pharmacies decide to leave Sigma Healthcare after the merger is completed.

In final thoughts on the ASX small-cap share, the fund manager said:            

Paragon Care's first quarter results for FY25 beat market expectations and we see strong momentum for the business going forward.

Motley Fool contributor Tristan Harrison has positions in Wam Microcap. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended EML Payments. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Person pretends to types on laptop drawn in sand.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a miserly session for investors today.

Read more »

Modern accountant woman in a light business suit in modern green office with documents and laptop.
Opinions

Too high? These 2 ASX shares might be due for a correction

These popular blue chips are looking dicey to me.

Read more »

A man clenches his fists in excitement as gold coins fall from the sky.
Broker Notes

These ASX 200 shares could rise 20% to 35%

These shares are being tipped to deliver market-beating returns by analysts.

Read more »

Keyboard button with the word sell on it.
Broker Notes

8 ASX All Ords stocks downgraded to sell ratings

Find out which shares are out of favour with the experts.

Read more »

Woman smiling whilst shopping in a clothing store.
Dividend Investing

Why this quality ASX 300 dividend stock is tipped to surge 54%

A leading fund manager forecasts significant outperformance from this quality ASX 300 dividend stock.

Read more »

A group of businesspeople clapping.
Broker Notes

Bell Potter names more of the best ASX 200 stocks to buy in June

These stocks could be best buys this month according to the broker.

Read more »

A businessman looking at his digital tablet or strategy planning in hotel conference lobby. He is happy at achieving financial goals.
Share Market News

Why Clarity, Coronado Global, Iperionx, and Lynas shares are roaring higher today

These shares are having a strong session on Thursday. Why are investors buying them?

Read more »

A woman looks questioning as she puts a coin into a piggy bank.
Opinions

The ASX 200 is approaching its all-time high. Here's why I'm not buying shares

I'm not seeing what the broader market is.

Read more »