The Motley Fool

3 ASX growth shares to build a portfolio around

When you’re building a portfolio you want to make sure that your larger holdings are good quality and have useful compounding potential.

The best way to build your wealth over the long-term is to find shares that have long growth runways and are re-investing for more growth.

Here are three great ASX growth shares you could build a portfolio around:

Xero Limited (ASX: XRO) 

Xero is one of the best businesses on the ASX. You can tell a business has a strong offering when it goes into competitive markets like the UK or the USA and wins lots of new customers.

The cloud accounting software business offers a lot of useful automation tools and is simple to use for business owners and accountants alike. It’s a big timesaver, which is why people are sticking with Xero and very happy to pay the monthly bill – which is a good source of cashflow for Xero. It has a very, very high retention rate. 

Xero is building a strong ecosystem for users, it has high profit margins and it’s re-investing heavily for more growth. It’s now cashflow positive and has its sights on becoming the global leader. 

Brickworks Limited (ASX: BKW) 

Brickworks is one of the most diverse businesses on the ASX with its large Australian construction materials division, its investment holding and its property trust holding.

There are two good reasons why I think Brickworks is a good value growth share today. When you take the value of its investments and property assets at book value, you’re getting the building products division for an extremely cheap price.

The expansion into the US market could be an excellent long-term play. Australia has a population less than a tenth of the US. Brickworks is good at long-term strategic planning, there’s a good chance it will grow into one of the main players there over the next decade, meaning it could be generating a lot higher profit if things go reasonably well.

Webjet Limited (ASX: WEB)

The Webjet share price has fallen substantially since the start of May, partially due to the loss of earnings and receivables from the Thomas Cook affair. But excluding that, Webjet is growing total transaction value (TTV) at a solid pace, particularly in its B2B WebBeds division where TTV was up 50% so far in FY20, excluding Thomas Cook.

Webjet is one of those businesses that is very scalable, which is why management believe the earnings before interest, tax, depreciation and amortisation (EBITDA) margin can creep towards 50% as it becomes bigger and more efficient.

I like the new initiatives of religious travel and a blockchain solution which will hopefully diversify earnings further.

Foolish takeaway

I believe all three of these companies are high-quality with very good long-term potential. Brickworks would be my pick for dividends, but Webjet looks too cheap to ignore if you can look at FY21’s earnings and beyond – even if FY20’s profit could be a bit downbeat.

NEW. The Motley Fool AU Releases Five Cheap and Good Stocks to Buy for 2020 and beyond!

Our experts here at The Motley Fool Australia have just released a fantastic report, detailing 5 dirt cheap shares that you can buy in 2020.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading over 40% off its high, all while offering a fully franked dividend yield over 3%...

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click here or the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.

CLICK HERE FOR YOUR FREE REPORT!

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia has recommended Brickworks and 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.