I think growth shares are the best way to go to beat the market over the longer-term due to the compounding effects.
Share prices are always changing, which can present different opportunities at different times. So when you think there’s an opportunity you just have to go for it because the market will probably adjust by the time of the next report.
I think these shares could be good value today:
A2 Milk Company Ltd (ASX: A2M)
It’s always a good idea to go for quality growing companies when they’re trading at good value. I think A2 Milk is looking like it’s good value, particularly when compared to other leading ASX growth shares. It’s valued at 33x FY20’s estimated earnings.
One of the best ways for local businesses to generate strong growth is international growth – A2 Milk is going very well in China and particularly in the US. The increase in advertising spending (and lower profit margin) could be a negative or a positive over the next couple of years, depending how effective it is at winning new business.
I think A2 Milk has a long growth runway because there are plenty of markets it can still expand into, whilst there’s also a lot of the market in the US and China still to tap.
Webjet Limited (ASX: WEB)
The market didn’t like the FY19 report and Webjet’s shares are down 27% since the middle of May, yet the company is still growing profit at a very strong rate compared to its price/earnings ratio. A good PEG ratio can uncover good opportunities.
WebBeds is growing impressively organically and management expect that the earnings before interest, tax, depreciation and amortisation (EBITDA) margin can grow from here. perhaps to 50%.
So, if Webjet can reach its expected earnings over the next year or two, it looks very cheap at only 13x FY21’s estimated earnings.
MNF Group Ltd (ASX: MNF)
MNF’s share price has gone up strongly since it reported a couple of weeks ago but there could be more growth to come as the company receives more of its revenue from recurring sources which also comes with a higher profit margin.
Management at the communications and technology business has provided guidance which, if the mid-point is reached, could see EBITDA and net profit grow by 27% in FY20. If that happens it’s trading at around only 24x FY20’s earnings.
I think each of these shares have the potential to beat the returns of the ASX index over the next two years, but as long as there isn’t a painful global recession I think Webjet could be the best one to own.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended MNF Group Limited. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended Webjet 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.