There are some strong ASX shares out there that could be potential ideas to buy.
Businesses that have fairly defensive revenue and are growing at a fast rate are certainly ones to think about. Some companies have grown significantly over a long period of time like CSL Limited (ASX: CSL) and REA Group Limited (ASX: REA).
I’m really interested in these two ASX shares:
Pushpay Holdings Ltd (ASX: PPH)
Pushpay is a leading electronic donation business that is facilitating the shift for large and medium US churches to digital operations.
The company has donation tools where people can donate digitally and the church can monitor various aspects of that, who’s donating, how much and so on.
It also has a number of other tools that are useful such as church management tools and video livestreaming capabilities.
There are a few key factors that combine to make me very interested in Pushpay.
COVID-19 seems to have accelerated the permanent adoption of churches and givers to Pushpay’s digital offering.
The ASX share is achieving strong operating leverage where profit is growing much faster than revenue.
Cashflow is being generated at a very pleasing, growing rate. That’s a good sign and gives Pushpay optionally about what to do with it. Management talk of making more value-adding acquisitions.
Pushpay is planning to grow its total addressable market into both the Catholic segment in the US and overseas eventually.
The ASX share seems pretty defensive as giving to the church (or tithing) doesn’t seem like the type of thing that’s really discretionary in nature, though recessions may cause a bit of a decrease in the overall amount of money donated.
At the current Pushpay share price it is valued at 30x the estimated earnings for the 2022 financial year, according to Commsec.
Xero Limited (ASX: XRO)
Xero is another strong ASX share that looks like a possible winner. Though it has already been doing a lot of winning.
The online software accounting business has seen a high level of subscriber growth for a number of years. Businesses and accountants are loving the tools that Xero offer.
It looks like a very scalable business with how high the gross profit margin is (86% in FY21). It’s only because Xero is investing so heavily for growth that its net profit isn’t soaring every year.
But Xero is now generating a ‘bit’ of net profit and positive operating cashflow.
The company is doing a wonderful job of growing its market share in many countries. It has an enormous market share in New Zealand. Xero also continues to grow rapidly in Australia and the UK despite already having many hundreds of thousands of subscribers.
Xero’s potential in the rest of the world is particularly attractive. There are small and medium businesses in almost every country in the world.
The ASX share can also grow its total addressable market by expanding into other areas of business services software, which it already is – in FY21 alone it made three acquisitions to improve its overall offering to subscribers around the world.
It’s pretty defensive because, as the saying goes, there are only two certain things in life – death and taxes. Businesses should want to know how their financial numbers are going and need to lodge taxation forms to pay the right amount of tax. ‘Not for profits’ like charities can use Xero too.
Final thoughts
Out of the two, Pushpay seems like the more attractive option. It’s priced at a more reasonable level and its gross profit margin is still growing at a pretty quick rate – it seems to have a very good growth runway.
There are quite a few other ASX growth shares that I’ve got my eyes on at the moment.
