Growth investment strategies have gone a little out of fashion recently as a combination of global macroeconomic factors have made valuing growing companies increasingly difficult. When the future is uncertain, young companies that have yet to prove they can turn a profit become more risky investments. Think of it this way: big defensive stocks like healthcare giant CSL Limited (ASX: CSL) or leading supermarket chain Woolworths Group Ltd (ASX: WOW) will most likely survive a recession, whereas your average small-cap might not make it.
However, decent growing companies with good business strategies have the best chance at survival, and they might even be the ones to show the greatest share price appreciation once the economic outlook becomes more favourable again. So with that in mind, here are 5 quickly growing companies that I think have the capability to survive a short-term downturn and go on to outperform the market over the next 2–3 years.
1. carsales.com Limited (ASX: CAR)
carsales.com is the market leading online automotive classifieds business in Australia. Revenues for FY19 were $418 million, an increase of 11% on the prior year, while adjusted net profit after tax (NPAT) was up 3% to $131 million. Far from a small company, carsales.com currently has a market cap of almost $3.8 billion and is fast growing into a blue chip in the vein of REA Group Ltd (ASX: REA). But what makes carsales.com such an attractive growth investment is its expanding international presence. It is rapidly growing its footprint in Asia and Latin America, which I think can deliver significant rewards to longer-term shareholders.
2. Pointsbet Holdings Limited (ASX: PBH)
Corporate bookmaker Pointsbet may not be every investor’s cup of tea, but it has some real growth potential ahead of it. Like carsales.com, Pointsbet is pursuing an international growth strategy and has its sights set on cracking the US market. US regulations are changing quickly, with many states now relaxing their restrictions against online sports betting. Pointsbet is already operational in New Jersey and Iowa, and the company believes that if all 50 US states were to legalise online sports betting by FY23, the total market revenue could be worth up to US$17.3 million a year.
3. Livetiles Ltd (ASX: LVT)
With a market cap of under $250 million, Livetiles might be the riskiest company on this list. However, it’s a company I’ve been following for a while now, and one that I believe could really take off. Its software helps its corporate clients design internal dashboards and online working environments with the aim of boosting employee engagement and productivity. It has been quickly growing its recurring revenues and has been involved in cross-selling initiatives in the US with tech giant Microsoft.
4. Baby Bunting Group Ltd (ASX: BBN)
The Baby Bunting share price has been on a tear recently, surging almost 50% higher since the beginning of August. FY19 was a breakout year for the infant product retailer: it increased its market share, added 6 new stores to its retail network, grew its online sales, and generated a much higher percentage of sales from its private label products. The company’s outlook for FY20 is also bullish, with forecasted growth in pro forma NPAT of between 32% and 46%.
5. Bubs Australia Ltd (ASX: BUB)
Infant nutrition manufacturer Bubs had a stellar run in the first half of 2019, with its share price surging to a 52-week high of $1.615 back in May. However, since then its performance has been underwhelming, with its share price sliding all the way back down to just $1.10 as at the time of writing. FY20 is still shaping up to be a strong year for the company, after it announced a new distribution agreement with Chinese e-commerce giant Alibaba as well as its launch into Vietnam earlier in November. I think that it’s only going to be a matter of time before its share price starts climbing again.
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Rhys Brock owns shares of BUBS AUST FPO and LIVETILES FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has recommended BUBS AUST FPO, carsales.com Limited, LIVETILES FPO, and Pointsbet Holdings 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.