3 of my favourite growth stocks to buy today

A company is worth the present value of its future cash flows. For growing companies, most cash flow will be generated far into the future and so these companies often appear expensive based on multiples of current annual earnings. Here are three growth stocks that I believe are cheap right now.

On the surface Nearmap Ltd (ASX: NEA) looks pricey. It has a market capitalisation of $250 million and reported a net loss of $7.1 million las year. However, the aerial mapping company is making progress on its US expansion strategy, which has incurred significant one-off costs that are responsible for last year’s loss.

Meanwhile, annualised contract revenue increased 38% in Australia to $34.4 million in 2016. With gross margins of over 90% and further growth likely, I think this business alone is comfortably worth more than $250 million.

Nearmap finished financial year 2016 with a record number of sales leads in the US and so the company could generate significant revenue there in 2016. Given the US market is an order of magnitude larger than Australia, continued success stateside will make the current share price a thing of the past.

Cloud accounting business XERO FPO NZX (ASX: XRO) has a market capitalisation of over $2.5 billion and despite its size is one of the fastest organically growing companies on the ASX. Like Nearmap, Xero is loss-making as management is prioritising durable growth over near-term profitability.

Recently Xero announced some exciting product improvements at a conference in Brisbane. The software will soon be able to code invoices and match most bank reconciliations items automatically. This will save accountants and bookkeepers huge amounts of time and places Xero at the forefront of the accounting software industry.

Medical diagnostics company Universal Biosensors, Inc. (ASX: UBI) has a market capitalisation of $60 million. It has developed technology that improves accuracy, lowers cost and reduces required sample sizes in point-of-care blood testing.

Last week, the company announced that its partner Siemens had received FDA clearance to market the Xprecia Stride device in the US which utilises test strips manufactured by Universal. This is the second product using Universal’s technology that has gained full US and European approval. The other is sold by Johnson & Johnson subsidiary Lifescan and is used by diabetics to monitor blood glucose levels.

Universal generates positive cash flows and is likely to receive a one-off payment from Lifescan in the next couple of years roughly equal to Universal’s current market capitalisation. If this payment is triggered then Universal will no longer receive royalty fees from Lifescan, but by then Xprecia Stride revenues should be substantial.

If you prefer investing in larger more established businesses instead then take a look at these three top blue chips.

These 3 "new breed" top blue chips for 2016 pay fully franked dividends and offer the very real prospect of significant capital appreciation. Click here to learn more.

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Motley Fool contributor Matt Brazier owns shares of Nearmap Ltd. and Universal Biosensors Inc. The Motley Fool Australia owns shares of Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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