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Brokers rate these 2 top ASX shares as buys in May 2022

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Can you believe May 2022 is here already? There are a number of ASX shares brokers rate as buys this month.

This article is about two smaller businesses that could be opportunities for investors to consider.

Here are two buy-rated stocks:

Elmo Software is an ASX tech share that provides HR and payroll software to small and medium businesses in Australia and the UK.

The Elmo Software share price has fallen 32% since the start of the 2022 calendar year.

Broker Morgan Stanley currently rates the ASX share as a buy with a price target of $7.80. That implies a possible rise of around 150% over the next year.

The company’s FY22 first half result included growth in a number of areas for the business. Annualised recurring revenue (ARR) rose by 35% to $98.3 million, while reported revenue rose 41% to $43.1 million.

In that result, Elmo was able to report a positive earnings before interest, tax, depreciation and amortisation (EBITDA) after it rose by $0.9 million to $0.3 million.

Due to “strong trading conditions” and increased adoption of cloud-software solutions by businesses to manage remote and hybrid workforces, Elmo upgraded its FY22 ARR guidance to $107 million to $113 million.

Elmo said that “operating leverage continues to improve with a reduction in key spend ratios across the business”.

Capitol Health describes itself as a leading provider of diagnostic imaging and related services to the Australian healthcare market. It has clinics across Victoria, Tasmania, South Australia, and Western Australia.

The Capitol Health share price has fallen by 17% since the start of 2022.

The ASX share is currently rated as a buy by Ord Minnett with a price target of $0.44. That implies a possible upside of more than 30%.

Ord Minnett thinks the business has demonstrated the defensive nature of its earnings and that the end of COVID-19 will help the business.

In the first six months of FY22, Capitol Health announced that revenue rose by 11.2% to $94.9 million. Operating EBITDA grew by 6.9% to $22.2 million. Statutory net profit after tax (NPAT) jumped 30.2% to $8.1 million.

The company is looking to expand its network through both bolt-on acquisitions and the opening of greenfield/brownfield locations. It’s also developing various synergies from the acquisition and opening of clinics. The ASX share is working on becoming more efficient by standardising its processes across its clinics.

According to Ord Minnett’s projections, the Capitol Health share price is valued at 24 times FY22’s estimated earnings with a grossed-up dividend yield of 4.3%.

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