The best time to buy growth shares is before anyone else catches onto the fact they’re great opportunities. If that’s not possible, the next best time to buy those growth shares is when they’re trading at good value.
Here are three attractively valued growth shares in my opinion:
Citadel Group Ltd (ASX: CGL)
Citadel is a technology business that offers secure enterprise management software that helps people working in security, defence, healthcare and education make decisions with the right information.
The company continues to win long-term contracts that are high-margin, offer good recurring revenue and provide scalability to win contracts in other states or with similar businesses.
In FY18 Citadel grew earnings per share (EPS) by 35%, yet it’s only trading at 24x FY18’s earnings. I think it’s a fairly undiscovered software-as-a-service (SaaS) idea.
Challenger Ltd (ASX: CGF)
I continue to believe that the annuity king is one of the best long-term larger-cap opportunities on the market at the moment. With its annuity and funds management business it’s likely that the business as a whole can keep growing whether the share market is doing well or not.
It may not deliver explosive growth, but it is growing year on year. This should lead to good compounding returns over the next decade.
New government rules and growing superannuation balances should mean that demand for Challenger annuities continues to grow as the number of over-65s increase by 70% during the next two decades.
It may be more volatile than some shares during rough times, but for me this will create a nice buying opportunity.
Challenger is currently trading at under 15x FY19’s estimated earnings.
Costa Group Holdings Ltd (ASX: CGC)
Costa is one of Australia’s largest food-growing businesses, it produces tomatoes, mushrooms, berries, citrus fruit and avocadoes.
The share price is slowly drifting downwards after management said that Costa would grow underlying net profit (NPAT-S) at low double digits in the short-term. Whilst this is a lower growth rate than FY18 it is still solid growth and it will compound profit nicely after a couple of years.
Costa has a number of growth initiatives that could see it grow at a pleasing rate for many years into the future such as bolt-on acquisitions and productivity investments. The growing Asian demand for quality Australian produce and also a growing global population should send food prices higher in time.
It’s currently trading at under 24x FY19’s estimated earnings.
All three of these businesses look attractive for their long-term growth potential in my opinion. In five to ten years I imagine they will all be valued quite a bit higher if they can continue to achieve a good growth rate.
Where to invest $1,000 right now
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*Returns as of February 15th 2021
Motley Fool contributor Tristan Harrison owns shares of Challenger Limited and COSTA GRP FPO. The Motley Fool Australia owns shares of and has recommended Challenger Limited and COSTA GRP FPO. The Motley Fool Australia owns shares of Citadel Group Ltd. 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.
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