If your risk profile allows for it, then having a little exposure to the small side of the market could be a good thing for a balanced portfolio.
After all, if you can identify the next blue chip while it is still in its infancy, the potential returns could be staggering.
There are a lot of small cap options for investors to choose from, but two that are highly rated are listed below. Here's what you need to know about them:
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Damstra Holdings Ltd (ASX: DTC)
Damstra is a $210 million integrated workplace management solutions provider. The company's cloud-based workplace management platform is used by businesses across numerous industries to track, manage, and protect their workers and assets.
Among its customer base are the likes of Boeing, Boral Limited (ASX: BLD), NBN, Thiess, and WaterNSW.
During the first half of FY 2021, Damstra reported a 29.6% increase in revenue to $13.3 million. Pleasingly, this is still only a small fraction of an addressable market which is expected to be worth US$20 billion by 2022.
Shaw and Partners is a fan of the company. It currently has a buy rating and $1.93 price target on its shares. This compares to the current Damstra share price of $1.06.
Whispir (ASX: WSP)
Whispir is another small cap share to watch. It is a $350 million software-as-a-service communications workflow platform provider which automates communications between businesses and their workers and customers.
Like Damstra, it has been growing at a quick rate. This led to the company reporting a 29.2% increase in its annualised recurring revenue to $47.4 million at the end of the first half. Pleasingly, more of the same is expected in the second half, which should be supported by its recent $45.3 million placement. These funds will be used to accelerate its growth strategy.
Whispir is another company with a large addressable market. Management currently estimates that the Workflow Communications platform as a Service market will be worth US$8 billion per year by 2024. This gives it a very long runway for growth.
Ord Minnett is positive on the company's future. It has a buy rating and $4.25 price target on its shares. This compares to the latest Whispir share price of $3.69.
