The ASX200 is a great place to find growth shares that could beat the market over the longer-term.
You don’t have to be an amazing stock picker to find a share or two that can deliver returns better than the ASX 200. Many of the biggest shares on the ASX are mature businesses with poor growth prospects, which is why the ASX index is underperforming the international share market.
Here are three of the most compelling ideas on the ASX:
A2 Milk Company Ltd (ASX: A2M)
A2 Milk has been one of the best shares on the ASX for a long time. It has built an impressive market position in a relatively short time and customers respect A2 Milk as one of the highest-quality products on the shelves of our supermarkets.
The company still has a long growth runway because it’s targeting the huge markets of China and the US. After that there are other regions like Europe, other Asian countries, Canada and so on that A2 Milk can grow into.
It’s trading at 29x FY21’s estimated earnings, which looks much cheaper than the high-growth tech shares on the ASX.
Brickworks Limited (ASX: BKW)
Brickworks has been a solid performer for shareholders for decades. Australia has a fast-growing population and a constantly-changing urban environment. Brickworks is well-placed to benefit with its building products businesses as a brickmaker, masonry, stone, roofing and so on. The construction sector’s confidence is rebounding with house prices going up again.
The US acquisitions seem like a good strategy to me as it opens up the huge US market to Brickworks. It has already become a leader in the north east region of the US.
Brickworks also owns a 50% stake of an impressive industrial property trust which is growing its net rental stream for Brickworks and the capital value is rising too. I also really like Brickworks’ large stake of investment house Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).
It’s currently trading at 16x FY20’s estimated earnings.
Webjet Limited (ASX: WEB)
Webjet has been one of the better growth shares on the ASX since it listed and it continue to rise.
In the FY20 half-year result the company is expecting underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of at least $80 million, which excludes one-off revenues & costs and the impact of AASB16. This would be growth of more than 37%.
For the full FY20 result underlying EBITDA is expected to grow organically by between 16% to 23% with total growth of 26% to 34%. Underlying EBITDA is expected to come in between $157 million to $167 million.
The consumer facing business is looking a bit sluggish at the moment, but the division is still expecting to achieve a little bit of growth.
However, it’s the B2B WebBeds division that looks particularly compelling over the next few years with an EBITDA margin target of 50%.
It’s trading at 15x FY21’s estimated earnings.
Each of these businesses look good value and have long-term growth trajectories. At the current prices I’d probably go for Webjet because of the potential for a takeover, but I’d also be very happy to buy shares of Brickworks.
Here are some more of the best growth shares on the ASX today.
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Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of A2 Milk. 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.