3 small-cap stocks this fundie tips to take off for shareholders

One way to make money slowly in the market is to buy an index-tracking exchange traded fund and watch it gently grow over say a five-year period. The steady Eddie approach to investing generally suits less-experienced investors, or those who want to go surf, with zero interest in the markets. 

However, if you're a self-taught or semi-sophisticated investor who fancies yourself as a budding Buffett, there's oodles of opportunity to make serious money at the small-cap end of the market, assuming you're prepared to risk capital losses. 

For a few small-cap picks I spoke to Melbourne-based fund manager and stock-picking guru Dean Fergie of Cyan Asset Management.

Pick #1

First up, Fergie likes Acusensus (ASX: ACE), with shares up 48% over the past year to $1.02. 

If you're constantly on the horn honking drivers stopped at green lights in traffic it's often because they're illegally texting or checking their social media while driving. 

Acusensus aims to clamp down on this growing trend by selling fixed and trailer-based cameras, hardware, and AI tech to prevent road fatalities and catch the texters. 

"I think there's a huge thematic there in terms of road safety," says Fergie. "Acusensus has got a proven commercial product in all of Australia and real validation of their product, it works. The business is also profitable, cashed-up and growing with so many structural tailwinds."

For the 12 months to June 30, Acusensus expects to post EBITDA between $4.3 million and $5.5 million on sales of $58 million. March quarter revenue also climbed 23% versus March 2024. 

It has a market cap of $142 million at $1.02 per share and there's no doubt this company has some tailwinds, with potential to expand overseas.  

Pick #2

Money-saving app Raiz (ASX: RZI) has long been touted as a takeover target by a bigger rival, including US doppelgänger and existing shareholder Acorns, but so far it's failed to catch a concrete bid. 

Perhaps potential suitors are waiting for Raiz to add to some already reasonably-impressive runs on the board in terms of user, sales, and profit growth. 

Fergie says he's surprised the stock is actually down 12.1% over the past five years to 62 cents on Thusday, as the market's enthusiasm for fintechs wanes for reasons unrelated to Raiz's operating success. 

"It [Raiz] now has 333,00 customers and $1.6 billion in funds under management. It's also a growing brand and profitable business with $20m in recurring revenue," he says. "Raiz also offers a cost effective way to save rather than spend, and parents can get their kids into good habits like saving this way."

Despite its operating success, the market values Raiz at just $64 million on Thursday to suggest it could be undervalued, or catch the much talked about takeover bid.  

Pick #3

Fergie also likes consumer lender Beforepay (ASX: B4P) as it looks cheap with potential to keep growing. 

Beforepay made a profit before tax of $1.1 million for the March quarter on sales of $10.1 million and has $16.3 million cash on hand. 

Cash advances to borrowers - as a proxy for growth - grew 16% to $200.6 million over the quarter. 

"Beforepay is interesting as you've got a lending business that's been growing its client base quite significantly over the last few years and they seem to have their credit engines reducing losses over time so the business is now profitable," says Fergie. "They're collecting a lot of data they can on-sell and they have a business called Carrington Labs that could expand in the US, which I don't think the market is assigning much value to."

Beforepay's market cap is just $57 million based on Thursday's share price of $1.18 to suggest the valuation is undemanding, assuming it can keep growing. 

These stocks might offer big capital growth in the future, but remember they can also bomb if things go wrong. They're not your traditional bottom draw stocks your mum and dad might like.