The Xero Limited (ASX: XRO) share price was a particularly poor performer on Thursday.

The cloud accounting provider’s shares finished the day a massive 13% lower at $117.39.

Why did the Xero share price crash lower?

The Xero share price came under significant pressure following the release of its full year results.

For the 12 months ended 31 March, Xero reported an 18% increase in revenue to NZ$848.8 million and a 39% jump in earnings before interest, tax, depreciation and amortisation (EBITDA) to NZ$191.2 million.

Although its revenue was broadly in line with expectations, its operating earnings fell well short of consensus estimates.

In addition to this, management’s operating expenditure guidance for the year ahead was much higher than the market was expecting.

Combined with weakness in the tech sector, the Xero share price was always going to struggle during yesterday’s session.

Is this a buying opportunity?

Analysts at Goldman Sachs believe the weakness in the Xero share price is a buying opportunity.

This morning the broker reiterated its buy rating but trimmed its price target slightly to $151.00.

This implies potential upside of almost 29% over the next 12 months.

What did the broker say?

Commenting on the result, Goldman said: “In our view, Xero delivered a positive FY21 result, with revenue +2% ahead of GSe, as the company showed stronger sub growth across all key markets, without sacrificing unit economics. Sub momentum also improved across 2H21 (i.e. record March) and churn declined meaningfully (despite the growth).”

‘We believe this reflects the increased importance of Xero’s products through an accelerating period of global digitisation, with Xero meaningfully increased its investment into product/marketing as it looks to capitalize on this opportunity. This drove a -13% EBITDA miss, along with FY22 opex guidance that was well ahead of expectations (i.e. 82-87% of sales vs. GSe 77%).”

Xero share price valuation

And while the broker has downgraded its near term earnings forecasts to reflect Xero’s investments, it doesn’t impact its longer term estimates. As a result, there has been little change to its valuation.

It concluded: “Reflecting the FY21 result and strong sub momentum, we revise FY22-23 revenue +3 to +4%. However, given the step up in investment our EBITDA is -29%/-28%, but our FY30+ earnings are largely unchanged. Consequently, our XRO 12m TP is -1% to A$151 given a -1% DCF value (lost near-term cashflows) and -2% in our EV/GP (higher GP, offset by 2X multiple reduction, in-line with US SaaS peers). With strong subscriber and revenue trends we remain positive on Xero and retain our Buy, with +28% upside potential.”

More reading

• 5 things to watch on the ASX 200 on Friday
• ASX 200 sinks alongside largest US inflation rise in 12 years
• ASX 200 falls below 7,000, Xero sinks, Afterpay falls
• 3 reasons why the Xero (ASX:XRO) share price selloff could be an opportunity
• Why American Pacific Borates, NAB, Perenti, & Xero are tumbling lower

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The banking sector has been in fine form this year and was a key reason the S&P/ASX 200 Index (ASX: XJO) recently reached a new high.

The good news for investors is that it doesn’t appear to be too late to buy the big four banks for income. Even after their strong gains in 2021, they are still forecast to provide investors with generous yields over the next couple of years.

Two highly rated ASX bank shares to look at are listed below. Here’s what income investors need to know about them:

Australia and New Zealand Banking GrpLtd (ASX: ANZ)

Last week ANZ released its half year results and revealed a statutory profit after tax of $2,943 million and cash earnings from continuing operations of $2,990 million. This was up 45% and 28%, respectively, on the second half of FY 2020.

This return to form allowed the ANZ board to declare a fully franked interim dividend of 70 cents per share.

Pleasingly, analysts at Morgans are expecting more of the same in the second half and in FY 2022. According to the note, the broker is forecasting fully franked dividends per share of 145 cents and 163 cents in FY 2021 and FY 2022, respectively.

Based on the current ANZ share price, this will mean yields of 5.3% and 6%. Morgans has an add rating and $34.50 price target on its shares.

Westpac Banking Corp (ASX: WBC)

Westpac was also a strong performer during the first half. For the six months ended 31 March, the bank reported cash earnings of $3,537 million. This was a 256% increase over the prior corresponding period and a 119% lift over the second half of FY 2020.

This allowed the Westpac board to declare a fully franked interim dividend of 58 cents per share.

Morgan Stanley was pleased with its result and retained its overweight rating and lifted its price target to $29.20. It also revealed that it now expects Westpac to pay fully franked dividends per share of $1.18 and $1.25 over the next two years.

Based on the latest Westpac share price, this will mean yields of 4.7% and 5%.

More reading

• What do the CEOs of the Big Four banks think of the Federal Budget?
• Which ASX bank share is the cheapest after earnings?
• Flight Centre and Zip were among the most traded ASX shares last week
• ASX 200 shares hit all-time high! How did we get here?
• Here’s why the ANZ (ASX:ANZ) share price underperformed today

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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With so many growth shares to choose from on the Australian share market, it can be hard to decide which ones to buy over others.

To help narrow things down, I have picked out three ASX growth shares that could be top options for investors today. Here’s what you need to know about them:

Audinate Group Limited (ASX: AD8)

The first ASX growth share to look at is Audinate. It is a leading digital audio-visual networking technologies provider. The key product in its portfolio is the Dante audio over IP networking solution. Management notes that Dante is the evolution of AV systems, converging all previous connection types into one. It delivers vastly superior performance while making these systems easier to use, easier to expand, and less expensive to deploy. The solution is the clear industry leader, with the number of Dante enabled products manufactured by its customers now eight times greater than its nearest rival. UBS has a buy rating and $10.40 price target on the company’s shares.

Megaport Ltd (ASX: MP1)

Another growth share to look closely at is Megaport. It is an elasticity connectivity and network services company. Megaport’s service allows users to increase and decrease their available bandwidth in response to their own demand requirements. This has proven very popular with businesses, leading to Megaport growing its recurring revenues at a rapid rate over the last few years. Pleasingly, this has continued in FY 2021. It recently released its third quarter update and revealed an 8% quarter on quarter increase in monthly recurring revenue (MRR) to $6.8 million. UBS was pleased with its update. The broker retained its buy rating and lifted its price target to $17.10.

Temple & Webster Group Ltd (ASX: TPW)

Another ASX growth share to look at is Temple & Webster. It is Australia’s leading online furniture and homewares retailer. While it was growing at a rapid rate prior to the pandemic, its growth went up a few levels during the crisis. This was due to the accelerating shift to online shopping. The good news is that online furniture shopping is still in its infancy in comparison to other areas of the retail market. This bodes well for the future, particularly given Temple & Webster’s leadership position. Management is now investing heavily to take take advantage of the shift and cement its position as the market leader. Morgan Stanley is pleased with this strategy. It currently has an overweight rating and $15.00 price target on its shares.

More reading

• Little ASX software share to explode once everyone wakes up: fundie
• Down 9% today, why the Redbubble (ASX:RBL) share price continues to tumble
• 2 ASX tech shares that are growing rapidly
• These are the 10 most shorted shares on the ASX
• Are there buying opportunities among ASX COVID fallen stars?

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends MEGAPORT FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of AUDINATEGL FPO and Temple & Webster Group Ltd. The Motley Fool Australia has recommended AUDINATEGL FPO, MEGAPORT FPO, and Temple & Webster Group Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The two ASX dividend shares revealed below both have dividend yields of more than 4%. They have also been delivering good dividend growth in recent years.

Not every dividend stock has been increasing the dividend in recent times. COVID-19 has made it very difficult for shares like Transurban Group (ASX: TCL) and Sydney Airport Holdings Pty Ltd (ASX: SYD).

However, these two picks have solid starting yields and a record of growth:

JB Hi-Fi Limited (ASX: JBH)

JB Hi-Fi is one of the largest retailers in the country. It specialises in selling phones, computers, TVs and household appliances. It’s currently rated as a buy by the broker Credit Suisse which has a price target on the business of $57.39. That suggests a potential upside over the next 12 months of more than 20%.

After a 12% fall in the share price over the last month, the JB Hi-Fi share price is now more attractive according to the broker. It was particularly impressed by the trading update for the quarter ending 31 March 2021. In that update, JB Hi-Fi Australia quarterly sales grew by 10.4%. JB Hi-Fi New Zealand sales rose 16%. The Good Guys sales rose by 5.8%.

JB Hi-Fi said that it continues to see heightened customer demand and strong sales growth rates over a two-year period. The broker believes investors don’t appreciate how much household demand there still is for the ASX dividend share’s products.

Based on Credit Suisse’s numbers, the JB Hi-Fi share price is valued at 11x FY21’s estimated earnings with a forecast grossed-up dividend yield of 8.3%.

Kogan.com Ltd (ASX: KGN)

The Kogan share price has fallen heavily during 2021. Over the last month alone Kogan shares have dropped by 25%.

For potential dividend investors, this has had the effect of boosting the trailing dividend yield on offer. Using the dividends paid over the last 12 months, Kogan currently offers a grossed-up dividend yield of 4.1%.

If the e-commerce company is able to sort out its inventory issues sooner rather than later should it should mean that there’s no long-term impact on the Kogan dividend.

In the FY21 half-year result, Kogan revealed 97.4% gross sales growth, 126.2% gross profit growth and 164.2% net profit after tax (NPAT) growth. This gave the board the flexibility to increase the interim dividend by 113.3% to 16 cents.

The ASX dividend share has been struggling due to inventory issues, but it continued to report growth of customers and sales. Kogan.com customers jumped over 77% to 3.2 million whilst gross sales went up 47%. This could signify positive trends for the longer-term.

Broker Credit Suisse thinks the Kogan.com share price is a buy too with a price target of almost $18.

Looking to FY22, the Kogan share price is valued at 22x forward earnings with a projected FY22 grossed-up dividend yield of 4.2%.

More reading

• 2 beaten down ASX shares rated as buys
• Down 9% today, why the Redbubble (ASX:RBL) share price continues to tumble
• These are the 10 most shorted shares on the ASX
• 3 quality mid cap ASX shares rated as buys
• Are there buying opportunities among ASX COVID fallen stars?

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia owns shares of Transurban Group. The Motley Fool Australia has recommended Kogan.com ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Exchange-traded funds (ETFs) are a really good way for investors to get strong diversification through a single investment.

Some ETFs only give exposure to a few dozen shares, whilst others give exposure to a few hundred or even thousands of shares.

However, more investments in a portfolio can lead to slightly smaller returns. So, the below two investments are potential ideas for good returns and very strong levels of diversification:

iShares S&P 500 ETF (ASX: IVV)

A S&P 500 fund is one of Warren Buffett’s favourite ideas to talk about for investors because of its low fees, good returns and solid diversification.

This investment gives investors exposure to 500 businesses that are listed in the US. These are among the biggest, best and most profitable companies listed there.

You do get exposure to the biggest names, with its top holdings being some of the biggest companies in the world such as: Apple, Microsoft, Amazon, Facebook, Alphabet, Berkshire Hathaway, JPMorgan Chase, Tesla and Johnson & Johnson.

One of the main advantages with S&P 500 shares is that they are usually global companies in their sector. That means that it’s not just a US ETF, but it’s a globally-focused ETF. These businesses have huge addressable markets and have created very impressive profit margins because of how large they have become, benefiting from economies of scale.

Another of the main benefits of this ETF is how low the management fee is at just 0.04%. That means almost all of the return is left in the hands of the investors. Over the last decade this investment has created an average return per annum of just over 18% with a very diversified portfolio.

Vanguard Msci Index International Shares ETF (ASX: VGS)

Whilst the first ETF gives exposure to US-listed shares, this ETF is about most of the global share market. It’s invested in every major share market including the US, the UK, France, Germany, the Netherlands, Japan and Canada.

In total, it’s actually invested in more than 1,500 businesses. Whilst it’s invested in the same global US names as the S&P 500, it is also invested in other major businesses like LVMH, ASML, SAP, Nestle, Unilever and GlaxoSmithKline.

The Vanguard Msci Index International Shares ETF has an annual management fee of 0.18% per annum. That’s a bit more than the first ETF, but still cheaper than most other active fund managers.

The returns have been in the double digits over the longer-term. Over the last three and five years, the average return per annum has been 13.26% and 13.76% respectively.

However, whilst this ETF is more globally diversified than the S&P 500, it still has more than two thirds of the portfolio invested in US-listed businesses.

More reading

• 2 excellent ETFs for ASX investors to buy in May
• Is Vanguard MSCI Index International Shares ETF (ASX:VGS) a strong investment idea for diversification?

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended iShares Trust – iShares Core S&P 500 ETF and Vanguard MSCI Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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On Thursday the S&P/ASX 200 Index (ASX: XJO) was out of form again and tumbled notably lower. The benchmark index fell 0.9% to 6,982.7 points.

Will the market be able to bounce back from this on Friday? Here are five things to watch:

ASX 200 expected to rebound

The Australian share market looks set to end the week on a better note. According to the latest SPI futures, the ASX 200 is expected to open the day 46 points or 0.65% higher this morning. This follows a solid night on Wall Street, which saw the Dow Jones jump 1.3%, the S&P 500 climb 1.2%, and the Nasdaq rise 0.7%.

Oil prices sink

Energy producers including Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) could finish the week in the red after oil prices sank overnight. According to Bloomberg, the WTI crude oil price is down 3.5% to US$63.76 a barrel and the Brent crude oil price is down 3.4% to US$66.97 a barrel. Concerns about rising COVID-19 cases in India and the resumption of the US gasoline pipeline weighed on prices.

Xero rated as a buy

The Xero Limited (ASX: XRO) share price crashed lower following the release of its full year results on Thursday. One broker that believes this is a buying opportunity is Goldman Sachs. This morning the broker has reiterated its buy rating, albeit with a slightly trimmed price target of $151.00. It commented: “Reflecting the FY21 result and strong sub momentum, we revise FY22-23 revenue +3 to +4%. However, given the step up in investment our EBITDA is -29%/-28%, but our FY30+ earnings are largely unchanged.”

Gold price rises

Gold miners Newcrest Mining Ltd (ASX: NCM) and St Barbara Ltd (ASX: SBM) could finish the week on a positive note after the gold price pushed higher. According to CNBC, the spot gold price is up 0.25% to US$1,827.30 an ounce. The precious metal was given a boost from easing treasury yields.

Carsales shares to return?

The Carsales.Com Ltd (ASX: CAR) share price could return from its trading halt this morning. The car listings company has requested the halt in order to raise funds to acquire a 49% stake in United States-based business Trader Interactive for approximately US$624 million (A$800 million). To fund the acquisition, Carsales is looking to raise $600 million via a pro rata accelerated renounceable entitlement offer at $17.00 per new share.

More reading

• ASX 200 sinks alongside largest US inflation rise in 12 years
• Has the A2 Milk (ASX:A2M) share price finally found a bottom?
• ASX 200 falls below 7,000, Xero sinks, Afterpay falls
• 3 reasons why the Xero (ASX:XRO) share price selloff could be an opportunity
• Why American Pacific Borates, NAB, Perenti, & Xero are tumbling lower

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia has recommended carsales.com Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The HeraMED Ltd (ASX: HMD) share price tanked today, closing 9% lower at 15 cents apiece.

This came despite the company signed a pilot deal with Obstetrix Medical, one of the USA’s largest women’s and children’s healthcare providers.

HeraMED and Obstetrix pilot agreement

HeraMED is a company focused on enhancing the digital resources available throughout the maternity process.

HeraMED’s pilot deal with Obstetrix links the company with US giant Mednax, of which Obstetrix is a subsidiary. Mednax provides maternity services to one in four babies across 39 US states.

Obstetrix is focused on providing birthing clinical services to obstetricians, including clinical research and a range of telehealth services.

Obstetrix has signed a pilot deal to evaluate HeraMED’s HeraCARE software and devices, which allow mothers to self-monitor their foetus’ heart rate, among other services. The deal involves the purchase of 100 HeraCARE licences.

HeraMED says that when the pilot program is complete, both companies aim to form a “comprehensive agreement” for further purchases.

HeraMED management comments

HeraMED CEO, David Groberman said:

We are delighted to have signed our first pilot agreement in the U.S. with a company of such significant status and scale. As a physician-led national medical group that partners with hospitals, health systems and health care facilities, focused exclusively on women’s and children’s care, Obstetrix Medical Group is a highly relevant partner and very well placed to support our commercialisation strategy.

Our focus remains on progressing the growing pipeline of potential partnerships, and HeraMED is well placed to capitalise on these opportunities and will update the market at the appropriate time.

HeraMED share price snapshot

The HeraMED share price has gained 24% in the past month and 40% this year to date. It’s traditionally been a fairly volatile share, and was just nine cents at the end of March this year.

However, a commercial agreement with Joondalup Health Campus saw the HeraMED share price hit 17.5 cents in mid-April before retreating again to its current price.

More reading

• 2 ASX 200 blue chip shares rated as buys
• ASX 200 sinks alongside largest US inflation rise in 12 years
• 2 rapidly growing small cap ASX shares to watch
• These ASX dividend shares offer generous fully franked yields
• How the Federal Budget will impact the ASX

Motley Fool contributor Lucas Radbourne-Pugh has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Are you wanting to buy some blue chip ASX 200 shares for your portfolio? If you are, then I would suggest you check out the two listed below.

These quality companies could have the potential to grow at a solid rate over the next decade. As a result of this, they have been tipped as blue chips to buy. Here’s why:

Cochlear Limited (ASX: COH)

The first ASX 200 blue chip share to look at is Cochlear. It is a global leader in the development, manufacture, and distribution of cochlear implantable devices for the hearing impaired.

Among its growing portfolio of world class products you will find the Nucleus Profile Plus Series cochlear implant and the Nucleus Kanso 2 Sound Processor. 

While the pandemic had a big impact on the company due to the deferral of elective surgeries, the company has bounced back strongly. For example, in February Cochlear released its half year results and reported an underlying net profit of $125.3 million.

While this was down 4% on the prior corresponding period, it is worth remembering that the prior period was before COVID-19 was a thing. Not only that, it was also a record first half profit.

Looking ahead, the company looks well-placed for growth in the future thanks to the ageing populations tailwind, its strong market position, wide distribution network, and the industry’s high barriers to entry.

Macquarie is a fan of the company. Its analysts currently have an outperform rating and $245.00 price target on Cochlear’s shares.

Woolworths Limited (ASX: WOW)

A second blue chip ASX 200 share that has been rated as a buy is Woolworths. The retail giant has been tipped as a buy due to the favourable outlooks for its key businesses. These include BIG W, BWS, Dan Murphy’s, and the jewel in the crown, Woolworths supermarkets.

In addition to this, the company has just confirmed that it plans to go ahead with its demerger of the Endeavour Drinks business in the very near future. This is expected to strengthen its balance sheet and lead to upwards of $2 billion of capital returns for shareholders.

Macquarie is also a fan of Woolworths. Earlier this week its analysts retained their outperform rating and $44.50 price target on the company’s shares.

More reading

• Top brokers name 3 ASX shares to buy today
• How the Woolworths (ASX:WOW) share price has withstood today’s market selloff
• Woolworths (ASX:WOW) share price higher on PFD acquisition news
• ASX 200 jumps, A2 Milk sinks, Crown rises
• ASX 200 up 1.1%: A2 Milk crashes, Crown-Star $12bn merger, Woolworths update

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. The Motley Fool Australia owns shares of Woolworths Limited. The Motley Fool Australia has recommended Cochlear Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The S&P/ASX 200 Index (ASX: XJO) is 0.72% lower today and back under 7,000 points for the first time in over a month. It’s the third consecutive day of losses for the index – each one above 0.7%.

Today’s market fall comes after the United States Bureau of Labor Statistics announced the consumer price index (CPI) for the country increased by 0.9% for the month of April – the largest rise in the measurement since 2009. Over the past 12 months, it jumped 4.2%; 160 basis points more than the 12 months up to March.

Both the Nasdaq Composite (INDEXNASDAQ: .IXIC) and the S&P 500 Index (INDEXSP: .INX) fell heavily – 2.7% and 2.1% respectively – after the figures were announced. The ASX followed the trend today when trading resumed at 10am.

ASX 200 falls as US inflation rises

Motley Fool Australia’s own chief investment officer, Scott Phillips, said that the performance of American stock and Australian shares usually correlated.

“I think it’s common for the ASX to follow US markets, almost slavishly,” he said. “The old saying is ‘when America sneezes, Australia catches a cold’.”

Mr Phillips agreed that inflation numbers out of the US were likely to have impacted today’s ASX 200 performance. “Yes, either directly or indirectly, it did affect the ASX. Directly, fears of inflation here are heightened [by the CPI results].”

Meanwhile, the tech slide continues

Tech shares have also had a rough day on the trading floor today. Afterpay Ltd (ASX: APT) finished the day 5.6% lower ($84.35), Xero Limited (ASX: XRO) collapsed by 13.7% ($116.47), while Nuix Ltd (ASX: NXL) shares equalled their 52-week low during morning trade before recovering to only be down 0.88% ($3.39). It should be noted Xero also released its full-year results up to 31 March 2021 today.

High growth shares (like those in the tech sector) and bond yields are usually inversely correlated. Bond yields, most of the time, go up when investors expect inflation to increase. According to Reuters, today’s US CPI results were “bigger than expected“.

Mr Phillips said today’s slide in tech shares may not have so much to do with the inflation numbers themselves, but rather reflected an ongoing downward pattern with tech shares at present.

“It’s more likely a continuation of a trend to sell off any growth stocks rather than anything new,” he said.

Is inflation really on the up?

While investors, both on the ASX 200 and in the US, are worried about rising inflation on the back of falling unemployment and government stimulus, policymakers do not appear to agree.

The Reserve Bank of Australia chair, Dr Phillip Lowe, said at the last meeting of the RBA board he did not expect interest rates to go up until 2024 at the earliest. The main reason he cited was because of low inflation.

[The RBA] will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range.

For this to occur, the labour market will need to be tight enough to generate wages growth that is materially higher than it is currently. This is unlikely to be until 2024 at the earliest.

The last annual CPI result in Australia was a much lower 1.1% when compared to the US.

According to Reuters, US Federal Reserve chair Jerome Powell and economists agree that today’s result is a blip due to a confluence of factors resulting from the coronavirus pandemic coming to an end.

“This is not a sign of an inflation problem,” economist Robert Barbera was quoted as saying.

“…we simply need time to get things back online [and ease supply bottlenecks].”

More reading

• Has the A2 Milk (ASX:A2M) share price finally found a bottom?
• ASX 200 falls below 7,000, Xero sinks, Afterpay falls
• Should you buy Afterpay (ASX:APT) and this ASX tech share following the selloff?
• What’s driving the Afterpay (ASX:APT) share price to 8-month lows?
• 3 reasons why the Xero (ASX:XRO) share price selloff could be an opportunity

Marc Sidarous has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Nuix Pty Ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Nuix Pty Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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If you’re interested in adding some exposure to the small side of the market to your portfolio then you might want to take a look at the shares listed below.

Here’s why these ASX small caps have been tipped as buys:

Nitro Software Ltd (ASX: NTO)

Nitro is a global document productivity company. It helps businesses of all sizes eliminate paper, accelerate business processes, and drive digital transformation. This is achieved by providing PDF productivity and eSigning for all in a single, affordable solution.

At present, Nitro is helping drive digital transformation across more than 11,000 businesses globally. This includes 68% of the Fortune 500 and three of the Fortune 10.

It was a very strong performer during FY 2020. For the 12 months ended 31 December, Nitro reported a 64% increase in annualised recurring revenue (ARR) to $27.7 million. This was driven by increasing demand for its popular Nitro Productivity Suite.

Positively, similarly strong growth is expected in FY 2021. Management’s guidance for the year ahead is ARR in the range of $39 million to $42 million. This will mean year on year growth of 41% to 51.6%.

One broker that is a fan is Morgan Stanley. Its analysts currently have an overweight rating and $3.70 price target on the company’s shares. This compares to the current Nitro share price of $2.63.

Volpara Health Technologies Ltd (ASX: VHT)

Another small cap ASX share to watch is Volpara. This healthcare technology company’s VolparaEnterprise software solution is a cost-effective, mission-critical tool that helps clinics deliver the highest-quality breast imaging services.

Volpara also has a growing number of add-on solutions that work with VolparaEnterprise and are expected to boost its average revenue per user (ARPU) metric in the future. These include its VolparaDensity, VolparaDose, VolparaPressure, VolparaLive, and VolparaPositioning products.

Management estimates that its whole suite of products equates to US$10 per user, which is seven times greater than its current ARPU of US$1.40. Combined with further market share gains, this could support significant revenue growth in the future.

Morgans is positive on Volpara’s future. It currently has an add rating and $1.94 price target on its shares. This compares to the latest Volpara share price of $1.23.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends VOLPARA FPO NZ. The Motley Fool Australia has recommended VOLPARA FPO NZ. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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