There are many good reasons for investors to investigate beyond the scope of the FTSE 100 heavyweights. Smaller companies may start off with share trading liquidity challenges and fall below the remit of most equity research analysts.

That can mean companies being priced more inefficiently than larger peers which is an opportunity for savvy investors.

PROVEN STRATEGY

As successful smaller companies build scale, trading the shares should get easier, reducing risk for investors. That will likely attract more analyst coverage, boosting stock market awareness and, arguably, bolster share price ratings.

There have been some great examples of this in action in the past few years, such as veterinary operator CVS (CVSG:AIM), Keywords Studios (KWS:AIM), financial administrator Sanne (SNN), litigation finance provider Burford Capital (BUR:AIM) and package holidays operator On the Beach (OTB).

NICHE MARKET EXPERTS

‘We think it makes sense to find a few names that are not so dependent on macro factors and tend to be more focused on niche markets,’ believe analysts at investment bank Berenberg.

Berenberg has pulled together a short list of companies that it thinks are are particularly interesting below a circa £600m market cap.

EIGHT FUTURE STARS?

On The Beach (OTB) 422p (market cap: £600m) – Package holidays (Shares story archive)

GB Group (GBG:AIM) 373.25p (£540m) – ID security and authentication (Shares story archive)

Restore (RST:AIM) 531.5p (£600m) – Office services provider (Shares story archive)

Quixant (QXT:AIM) 460p (£300m) – Gaming terminal technology (Shares story archive)

Victoria (VCP:AIM) 628.5p (£570m) – carpets and flooring retail (Shares story archive)

Gym Group (GYM) 218.5p (£290m) – Fitness centre operator (Shares story archive)

Hollywood Bowl (BOWL) 186.5p (£280m) – Ten-pin bowling hall operator (Shares story archive)

XLMedia (XLM:AIM) 150.5p (£300m) – Gaming industry marketing (Shares story archive)

Find out how to deal online from £1.50 in a SIPP, ISA or Dealing account.

Issue Date: 09 Oct 2017