If I had $1,000 to invest into some ASX growth shares, then I’d want to pick some businesses that are growing strongly and have plenty of growth potential left.
I’ve got my eyes on these two stocks:
Xero Limited (ASX: XRO)
Xero is a internet-based provider of accounting software. It’s actually one of the biggest across the world in its industry, with around 2.5 million subscribers.
For me, one of the most attractive features of Xero is its extremely high gross profit margin, which reached 85.7% at 30 September 2020. The benefit of a high gross profit margin is that a lot of the new revenue falls straight to the next profit lines like the EBITDA (EBITDA explained) and net profit.
Xero is clearly focused on the long term with how much the ASX share continues to invest into the business for growth and operational improvements, whilst building better products for customers.
In the FY21 half-year result, Xero’s subscriber base increased by 19% to 2.45 million, with revenue growing by 21% to $410 million. Xero’s scalability was on display with EBITDA jumping 86% to $120.8 million and free cash flow generation of $54.3 million.
A few bolt-on acquisitions such as Planday and Hubdoc continue to improve the complete offering by Xero, which will hopefully lead to even stickier subscribers and a more attractive proposition for potential customers.
Redbubble Ltd (ASX: RBL)
Redbubble is one of the ASX shares that’s experiencing a big boost from the soaring global e-commerce sales.
Artists make designs and then Redbubble (and its third party printers and suppliers) fulfils the order for customers. It’s generating a lot of growth.
In the first half of FY21, Redbubble said its marketplace revenue increased by 96% to $353 million for the six months to 31 December 2020. Redbubble boasted that high growth rates continued across all geographies and product categories. Gross profit grew by 118% to $144 million.
The company is generating good economies of scale as it gets bigger, which allows it to invest in further in a better experience for customers whilst benefiting from growing profit margins.
In January, Redbubble said that its marketplace revenue went up 66% (or 82% in constant currency rate terms). This suggests that the overall FY21 result could be solid.
I think that Redbubble could be one of the ASX growth shares to watch over the next five years to ten years as it builds its market share, grows margins and benefits from the resulting strong cashflow. It’s one of the most promising ASX stocks in my opinion.
