Morgans names 2 small cap ASX stocks to watch

Having a bit of exposure to the small side of the market can be a good thing for a portfolio if your risk tolerance allows it.

You only need to look at the performance of the S&P/ASX Small Ordinaries index to see this.

It is up 22% year to date, whereas the S&P/ASX 200 index is only up 7.4%.

But which small cap ASX stocks could be worth considering? Let's take a look at two that Morgans is positive on. They are as follows:

Atturra Ltd (ASX: ATA)

The first small cap ASX stock that Morgans has been looking at is Attura.  It is a technology company providing a range of enterprise advisory, consulting, IT services, and solutions to local government, utilities, education, defence, federal government, financial services, and manufacturing industries,

It recently revealed the immediate termination of a fixed term contract with an Australian public sector body. While this is disappointing, Morgans believes that significant share price weakness since the announcement has created an opportunity for investors. It said:

ATA have announced a contract dispute which will negatively impact its FY26 and its 1H26 result. Management commented that "Atturra does not have a history of disputes or termination of material contracts and views this as a one-off occurrence. ATA's balance sheet remains strong, and the Company sees no ongoing impact from this purported termination." We agree and see this as a largely one-off event. We reduce our forecasts in line with guidance which lowers our TP to 80cps (was 95cps).

Morgans has an accumulate rating and 80 cents price target on its shares. This implies potential upside of 21% for investors over the next 12 months.

PeopleIn Ltd (ASX: PPE)

Another small cap ASX stock that Morgans is positive on is PeopleIn. It is a workforce solutions company servicing over 4,000 businesses.

It focuses on high-demand and defensive employment sectors including engineering, trades and labour, food services and agriculture, technology, finance, corporate services, education and defence.

Morgans was pleased with the company's decision to divest businesses and believe it will create higher quality earnings. It explains:

PPE has now divested two businesses as it, refocuses on its core competencies, being Queensland infrastructure, food and agriculture, defence and professional services. Whilst the divestments have been opportunistic and at healthy earnings multiples, the impact has been dilutionary to EPS. Offsetting the lower EPS, the residual business should prove higher quality (and higher growth), as the business looks beyond what is approaching cyclically low earnings.

To this end, we continue to see earnings growth driving share price appreciation through FY27/28, with any turnaround unlikely to be visible until 4QFY26. Hence, we reiterate our Speculative Buy rating with a $1.10/sh price target.

Morgans has a speculative buy rating and $1.10 price target on its shares. This implies potential upside of 25% over the next 12 months.

The post Morgans names 2 small cap ASX stocks to watch appeared first on The Motley Fool Australia.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Peoplein. The Motley Fool Australia has recommended Atturra and Peoplein. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2025