Small cap shares can make for volatile investments and require careful analysis to help guard against picking a dud. In this article, I’ll look at two companies that might be worth further attention.
MotorCycle Holdings Limited (ASX: MTO)
Founded in 1989, MotorCycle Holdings is Australia’s leading motorcycle dealership and accessories group. It has 48 franchises operated from 31 dealership and 8 retail accessory locations in Queensland, New South Wales, Victoria and the Australian Capital Territory.
Motorcycle sales have been in a lean spell of recent times, which has affected the recent financial performance of the business. The company recorded a 13% decrease in earnings per share (EPS) during the 2019 financial year (FY19).
Despite the industry headwinds, the company has been able to grow its market share, accounting for 10.6% of all new motorcycle sales.
With net cash on the balance sheet, MotorCycle Holdings is in a good position to take advantage of growth opportunities when industry conditions improve.
The company will be hoping that lower interest rates will lead to cash-strapped consumers opening up their wallets and reversing the recent trend of falling motorcycle sales across the country.
MotorCycle Holdings’ share price has been on a bit of a wild ride the past year, having fallen from a high of $3.37 all the way to $1.00 in May, before a strong run up in recent months. The share price was one of the strongest performers on the market yesterday, up 5% to $2.10.
Audinate Group Limited (ASX: AD8)
Audinate is a provider of digital Audio-Visual networking technologies. Dante is Audinate’s technology platform that distributes digital audio signals over computer networks.
Audinate’s solutions are utilised across thousands of installations within the professional AV market, which includes the Sound Reinforcement, Broadcast, and Recording segments.
The company has been growing impressively, recording a 44% uplift in revenue in FY19 and an almost 400% rise in earnings before interest, tax, depreciation and amortisation (EBITDA).
With sales momentum expected to remain strong in the medium term, and with the benefit of high gross margins, the business looks set to become consistently profitable. Investors have been bidding up shares as a result, with the share price more than doubling in the past 8 months.
Which Is My Preference?
I think you could build a solid case for both businesses but if I had to pick one, I would choose Audinate as I believe it has a long runway of growth still ahead of it, less at the mercy of prevailing economic conditions. However, Audinate’s share price has run pretty hard this year and I’d be looking for a pull back in the share price before considering buying shares.
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At the time of publishing, Luke has no financial interest in any companies mentioned.
