What are disruptor stocks?

Richard Hemming


ASX investors don't want to miss tomorrow's stock report as we cover a new disruptive stock that you won't have heard of. Everyone knows about the disruptive stocks Afterpay (APT) and Zip Co (Z1P), but the big money in disruption is often made from the stocks people don’t know about. Yes, the ASX Small Caps that are Under the Radar. Access our research and sign up for a free trial today

We look for small disruptor stocks that become the establishment

When we started covering the disruptive stocks Afterpay and Zip Co in 2017 their valuations were less than $500m. Fast forward to today and APT alone is over $27bn, while Z1P is a measly $3.6bn. With this kind of appreciation of value, it’s easy to forget past disrupters like Seek (SEK) and realestate dot com owner REA Group (REA) in the world of digital advertising, which also now have market caps in the tens of billions. These companies, once disruptors are now the establishment.

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Disruption originates in the world of ASX Small Caps

All these companies led ASX investors to making huge gains, but it’s important to remember that disruption most often originates in the world of ASX Small Caps. Disruption is the natural space for small companies looking to grow quickly by building market share at the expense of their bigger counterparts.

Flying high on disruption

Disruption sometimes means smaller companies finding lower cost ways of doing business, unencumbered as they are by “legacy” technologies. Alliance Aviation (AQZ) isn’t widely known to be a disrupter because it’s in the aviation industry. But as tomorrow's report explains, its success is due to its foresight in buying low maintenance planes on the cheap and utilising a superior business model based on contracts that avoid day to day competition for seats that ties up the bigger airlines. If you doubt that is disruption, go and speak to Virgin Australia’s outgoing chief Paul Scurrah. 

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The point about disruption is that over time it becomes obvious, such as in the above situations. But early on, when there is big money to be made, there is always a great deal of uncertainty, which translates to very high risk. Initially it is highly doubtful that a venture that involves shaking up an industry with a new business model or technology will be commercial. Trying something completely new is an unnatural business strategy and fraught with danger. It’s less obvious what the defensible advantage of the business is. Part of Under the Radar Report’s job is to work out which ASX Small Caps are targeting the right competitive advantage.

A med-tech disrupter

Disruption can occur when the new entrant provides the same service at a much lower cost. Other times there is the technology edge that we see in a med-tech stock that we also cover tomorrow, which is utilising AI as well as a comprehensive platform to provide better value for its patient and hospital customer base. Disruption is not only about being the lowest cost provider!

Under the Radar Report's track record

There are many companies that we’ve been on the right end of the disruptive wand, you might have even invested in some! These include:

  • IT cloud specialist Macquarie Telecom (MAQ),
  • online retailers Kogan (KGN) and City Chic (CCX),
  • med-techs Nanosonics (NAN), Sirtex Medical (SRX), Medical Developments (MVP), Clover  Group (CLV),
  •  geographic technology provider Nearmap (NEA), junior telcos like BigAir (BGL) and MNF (MNF)… the list goes on.

Diversification is key

The key take-out comes back to diversification. By holding a basket of Small Caps that have disruptive potential you can be the beneficiary of some really big returns. That’s why Under the Radar Report spends so much time hunting for candidates for subscribers’ baskets.

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About the Author

Richard Hemming

Richard Hemming (r.hemming@undertheradarreport.com.au) is an independent analyst who edits www.undertheradarreport.com.au, which provides investment opportunities in Small Caps that you won’t get anywhere else.

Under the Radar Report is licensed to give general financial advice only (AFSL: 409518). The author does not own shares in any of the stocks mentioned.

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