I believe ASX growth shares have the opportunity of giving us the strongest returns over time, thanks to the power of compounding.
Both of the companies I’m going to talk about have grown into impressive global competitors. But, I believe they’ll be able to continue delivering good performance over the long-term at the current prices.
Xero Limited (ASX: XRO)
This is one of the world’s leading cloud accounting software providers, with a major presence in New Zealand, Australia, the UK and South Africa. It is growing its suscriber presence in plenty of other countries, though it hasn’t been as successful in the US and Canada as it would like.
The recent FY24 half-year result showed many things that I’d want to see – subscriber growth, average revenue per user (ARPU) growth, operating revenue growth, net profit growth and free cash flow growth.
HY24 saw subscribers grow 13% to 1.94 million, ARPU rose 6% to NZ$37.38, operating revenue improved 21% to NZ$800 million, net profit improved NZ$70 million to NZ$54 million and free cash flow rose NZ$91 million to NZ$106.7 million.
If subscriber numbers keep growing and retention remains high, I think this ASX growth share may be much bigger in five years. It’s down 17% from the end of August, so it looks attractively cheaper to me.
Webjet Limited (ASX: WEB)
Most people know Webjet for its online travel agency (OTA) business, which has increased its market share since the tumultuous COVID-19 period. A bigger market share and a bigger Australian population is good news for the company’s longer-term profit aspirations.
But what gets me really excited by this ASX growth share is its WebBeds segment, a major player in the business to business global market. Webjet has done a lot of work on increasing the profit margins of this business, which is now paying off enormously.
In the first half of FY24, WebBeds reported volumes were 50% higher than pre-pandemic levels, and it achieved EBITDA (EBITDA explained) of $89.9 million (up 41% year on year).
Overall, HY24 saw underlying net profit more than double to $70.7 million.
While the COVID recovery has largely played out, there is still room for more international capacity to come online, which would help earnings in Australia.
Once the world is through the current cost-of-living pain, I think Webjet could achieve even stronger margins and deliver good net profit, which could make today’s valuation seem cheap for the ASX growth share. The Webjet share price is down 15% from the end of July 2023, so this is a cheaper time to invest.
