Best Small Cap AI stock on ASX

As we all know its extremely difficult to gain exposure to this theme on the ASX.

Looking at the numbers last quarterly this is a massive sleeper that people are just starting to wake up to.

The company has won the Best use of AI at the annual Australian Fintech awards two years running

From the investor pack – ASX announcement on the 29/01/24:

In my view the company’s share price will not be trading here for much longer.

Rationale for growth:

1. The company’s revenue is forecast to grow 17% from last financial year at the upper end of guidance (looking at the past two quarters you would expect to see this revised up)
2. We have just seen the first positive cash flow quarter – this is a massive inflexion point going forward as current revenue supports the cost base
3. You are talking about a growth company that is trading on 2X revenue
4. Underlying EBITA of $1-$3m this year – material improvement from $0.2m last financial year
5. High margin digital is growing as a percentage across the book – digital accounted for 56% in the consumer division (ARMA’s largest)
6. The company has no debt and has $13m in the bank – You can’t highlight this enough for a small cap
7. Addressable market of circa 2.5B which the company has a small penetration of roughly 1.5% - of which this market will only grow quicker as companies move away from selling debt

Following the last two $10m quarters you would expect/hope there was an upgrade to guidance coming shortly.

Assuming they do $42-$44m this year – if they grow again at 17% you are looking at a circa $52m FY 24/25.

On the back of that you would think with the improving margins the company would bank $5 - $7m next year

In short:

Cost of development of software covered

revenue growing 17%

Margins improving

Cash flow positive

$13m in the bank and no debt

Growing market for the foreseeable future

A scalable business which can be replicated in international markets

The integration of the software has taken longer than I would have hoped, which has led to a lag in the revenue coming through. On the flipside you would think this revenue will be sticky as a result of this.

We now appear to be finally at the point where this revenue is flowing through.

This is a real sleeper in my view that won’t be ignored for much longer.