The best way to beat the ASX 200 is with growth shares in my opinion. You are unlikely to beat the market or generate strong returns by choosing some of the big blue chips.
Going for smaller businesses that already are very profitable could be the way to go, like these two ASX growth shares:
Citadel Group Ltd (ASX: CGL)
Citadel is a software business that provides secure data management for people to make decisions 'anytime, anywhere'.
In FY18 it grew revenue by 10% to $108.5 million, earnings before interest, tax, depreciation and amortisation (EBITDA) went up 13% and the earnings per share (EPS) grew 35%. I also like the see-through revenue it has with the contracts that are largely with public organisations.
Citadel is trading at around 23x FY18's earnings with more growth in store in FY19. The software business has acquired Gruden, a government software as a service (SaaS) business that mostly operates in the eProcurement space and Citadel continues to win new contracts.
It has recently hired someone to focus on overseas growth and the company is actively looking for an acquisition abroad.
MNF Group Ltd (ASX: MNF)
MNF is one of the country's leading voice over internet protocol (VoIP) businesses with an impressive list of clients including Skype and Uber.
In FY18 MNF grew revenue by 15% to $220.7 million, it grew EBITDA by 3% to $24.6 million and EPS fell 6%. The EBITDA and EPS figures were impacted by the $2.3 million investment into the Pennytel brand – many businesses would account for that cost over several years.
MNF continues to grow organically as well as through new initiatives like Pennytel & Singapore expansion.
Using management's figures, MNF is trading at between 17x to 19x FY20's estimated earnings.
Foolish takeaway
I think both MNF and Citadel are now trading quite attractively for their long-term growth potential, particularly if they grow their earnings overseas.
