One of the best ways to potentially supercharge your portfolio’s returns is to have exposure to small cap ASX shares. 1300 Smiles Limited (ASX: ONT) and Experience Co Ltd (ASX: EXP) are worth watching.
Why Small Caps?
The small cap space can be extremely volatile with both big winners and big losers. It’s here that stock selection is of utmost importance.
Typically companies that fall outside the All Ords receive far less coverage from analysts and institutional funds which provides an opportunity for savvy investors to take advantage of market inefficiencies.
These next two small-cap ASX shares have the potential to beat the market over the next 12 months
1300 Smiles Limited
1300 Smiles is a dental business aggregator based out of Queensland. The business lead by founder and majority owner Dr Daryl Holmes has expanded into other states over the past decade via the acquisition of private dental practices.
Management has been patient, only acquiring practices that fit their strict investment hurdles. This has lead to a dearth of opportunities in recent years. However, there are signs that opportunities are now becoming more plentiful as evidenced by a recent string of acquisitions all of which are expected to be earnings accreditive.
Trading on a forward Price-Earnings (P/E) of 18x it is not dirt cheap but it is a good quality business with strong earnings visibility and a founder with significant skin in the game.
Experience Co Ltd
Experience Co is an adventure tourism business based in Queensland with its key activities including tandem skydiving, white water rafting and Great Barrier Reef flights and boat trips.
The Experience Co share price has come under significant pressure recently with the company having made two profit downgrades in the past four months.
The business is heavily leveraged to the Queensland tourism industry which has been soft of late due to declining passenger arrivals into Cairns airport and adverse weather events including increased rainfall and cyclones.
Whilst this is clearly not an ideal scenario, I believe these are temporary rather than structural issues with the long term favourable trend in adventure tourism likely to remain in place. It is also worth noting that the majority of skydiving customers are international travellers which may work in the company’s favour if the Australian dollar (AUD) continues its slide, encouraging more international tourism to Australia.
At the current share price of $0.22 Experience Co is certainly not without risk, but I think investors are being offered an attractive risk/reward tradeoff.
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At the time of publishing, Luke has a financial interest in Experience Co Ltd.
