3 growth shares with the potential to beat the market

The good news for investors that are interested in growth shares is that I think the local share market is home to a large number of them.

While some trade at exorbitant multiples, others trade on what I would deem to be fair valuations and have the potential to provide market-beating returns this year.

Three which are at the top of my list include:

A2 Milk Company Ltd (ASX: A2M)

As of yesterday’s close, a2 Milk Company’s shares were changing hands at approximately 35x estimated forward earnings. While this looks expensive on paper I believe this is great value considering its explosive growth potential. This is especially the case in the Chinese market where infant formula sales are growing strongly. And despite its rapid growth it still only holds a tiny share of the market. I expect this to increase thanks to recent regulation changes reducing competition. A further boost to its growth could come from the U.S. market. Last night management advised that it is expanding into the North East of the United States. This should increase its presence in the country from 3,600 stores to approximately 5,000 stores.

Altium Limited (ASX: ALU)

I believe that this software-as-a-service company is a great option for investors due to its exposure to the Internet of Things boom. As almost all connected devices require a printed circuit board (PCB) inside them, I expect demand for Altium’s award-winning PCB design software will increase greatly. I believe this will ultimately lead to bumper profit and dividend growth from Altium. Even management appears confident in this and is targeting revenue of US$200 million by FY 2020. This will be almost double the revenue it generated in FY 2017.

Aristocrat Leisure Limited (ASX: ALL)

One of my favourite growth shares on the local market is Aristocrat Leisure. The gaming technology company was a real star performer in 2017 thanks to its fledgling digital segment. Pleasingly, this segment has recently been given a major boost through two significant acquisitions which have added a number of popular mobile and social games to its portfolio. I expect this to lead to strong increases in recurring revenues in FY 2018 and beyond.

Finally, here are three more top growth shares I'm tipping to smash the market in 2018.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk and Altium. 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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