Due to the potential returns on offer at the small end of the market, if your risk profile allows, having a little exposure to it could be a good thing for a portfolio.
But which small caps should you look at? Listed below are two small caps that are highly rated. Here's what you need to know about them:
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Bigtincan Holdings Ltd (ASX: BTH)
The first small cap ASX share to look at is Bigtincan. It is an artificial intelligence-powered sales enablement automation platform provider.
The Bigtincan Hub platforms allows users to work with a unified set of productivity tools for creating, editing, annotating, sharing, and collaborating. This helps drive sales, productivity, engagement, and opportunities.
Demand for its platform has been growing strongly, leading to stellar annualised recurring revenue (ARR) growth in recent years. This has continued in FY 2021 despite the pandemic. During the first half of FY 2021, Bigtincan reported a 50% increase in its ARR to $48.4 million.
This went down well with analysts at Morgan Stanley, which put an overweight rating and $1.40 price target on its shares. This compares to the latest Bigtincan share price of 98 cents.
Mach7 Technologies Ltd (ASX: M7T)
This medical imaging data management solutions provider is another small cap to look closely at.
Like Bigtincan, it has been experiencing strong demand for its award-winning enterprise imaging platform in recent years. This has also underpinned very strong ARR growth.
For example, at end of the first half of FY 2021, Mach7's ARR had grown to $10.2 million. This was up a sizeable 88% on the prior corresponding period.
Positively, this brings it closer to becoming profitable on an operating basis. Management advised that its ARR now provides 64% coverage of its operating expenses.
Morgans is a fan of the company. It recently put an add rating and $1.68 price target on the company's shares. This compares to the latest Mach7 share price of $1.21.
