Although small cap shares are riskier than their blue chip counterparts, I believe a little exposure to them can be a good thing for a portfolio. Especially if you can pick out one with mid cap or even large cap potential.
A prime example of this is printed circuit board design software provider Altium Limited (ASX: ALU).
Just over six years ago Altium had a market value of around $60 million, whereas today its value is approaching $3 billion. Investors that bought Altium shares in 2012 and held onto them until today have been rewarded incredibly handsomely.
However, it is worth remembering that not all shares will be a successful as Altium and many small cap shares may never fulfil their potential.
Three which I think have a chance of following in the footsteps of Altium are listed below. Here's why they could be worth adding to your watchlist:
Atomos Ltd (ASX: AMS)
Atomos is a recently-listed global video technology company that enhances video content creation by producing monitor-recorder products that connect the imaging and computer worlds together. I believe it is well-positioned to benefit from the forecast growth in original content spending and the rise in professional-amateur content creators and expect solid sales growth over the coming years. This year sales are expected to increase 18.5% to $42.25 million.
ELMO Software Ltd (ASX: ELO)
ELMO is a leading provider of cloud-based human resources and payroll software solutions. Thanks to strong demand for its software, it recently reported first quarter cash receipts growth of 91% on the prior corresponding period to $10.3 million. Due to the quality of its product and its large addressable market, I feel confident that there will be more of the same over the course of FY 2019 and beyond.
Megaport Ltd (ASX: MP1)
Megaport is a provider of elastic interconnection services to a wide range of blue chip customers across data centres globally. Thanks to growing footprint and increasing demand due to the cloud computing boom, Megaport recently reported a 20% increase in its monthly recurring revenue to $2.4 million.
