The ASX has a number of excellent growth shares within its ranks like CSL Limited (ASX: CSL), Xero Limited (ASX: XRO), Gentrack Group Ltd (ASX: GTK) and a2 Milk Company Ltd (ASX: A2M). However, most of the good quality growth shares are trading at high valuations due to their impressive performances. CSL is trading at 38x FY18’s estimated earnings, a2 is trading at 39x FY18’s estimated earnings and REA Group Limited (ASX: REA) is trading at 43x FY18’s estimated earnings. If you want to beat the market over the next year or so, I don’t…
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However, most of the good quality growth shares are trading at high valuations due to their impressive performances. CSL is trading at 38x FY18’s estimated earnings, a2 is trading at 39x FY18’s estimated earnings and REA Group Limited (ASX: REA) is trading at 43x FY18’s estimated earnings.
If you want to beat the market over the next year or so, I don’t think it makes much sense to buy at such a high price.
However, that doesn’t mean you should be scared off growth shares altogether. I strongly believe that the best way to compound your way to wealth is by investing in growth shares. Perhaps overseas is the best place to find good value growth shares.
Some of the best growth shares in the world, Facebook and Alphabet (Google), are growing revenue at above 20% per year like clockwork yet they’re both trading with forward price/earnings ratios in the 20s.
Facebook and Google are both growing their revenues at an impressive rate. Over the long-term they are very likely to continue taking most of the global increased marketing spending by companies.
Facebook has a vast base of regular users that it is only starting to monetise effectively. It isn’t generating any meaningful earnings from Messenger or Whatsapp yet. In the longer-term it could also strongly benefit from the growth of virtual reality (VR).
Google has several segments that would be big businesses by themselves: Search, Youtube, Play, Maps and Android. Youtube is going to win a big share of growth of online video advertising and Google’s automated car, Waymo, could be a big winner for the company over time.
Facebook and Google have driven global share indexes higher, but I think there’s a lot more to come over the next decade.
You could get access to these winners by buying them directly, or investing in them indirectly through many options like BETANASDAQ ETF UNITS (ASX: NDQ), Vanguard US Total Market Shares Index ETF (ASX: VTS), Vanguard MSCI Index International Shares ETF (ASX: VGS), MFF Capital Investments Ltd (ASX: MFF) or one of the funds offered by Magellan Financial Group Ltd (ASX: MFG).
If you want to stick to top quality ASX growth shares, then I suggest you read about these top stocks.
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Motley Fool contributor Tristan Harrison owns shares of Magellan Flagship Fund Ltd. The Motley Fool Australia owns shares of and has recommended BETANASDAQ ETF UNITS. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF. 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 Scott Phillips.