I think the best way to beat the market is with good ASX growth shares.
Growth shares have the potential to deliver stronger returns because they are increasing their underlying value at a faster rate than mature businesses like Commonwealth Bank of Australia (ASX: CBA), though they normally have a lower dividend payout ratio and a lower dividend yield.
Here are my three best growth share buys right now:
Service Stream Limited (ASX: SSM)
Service Stream provides integrated, end-to-end asset life-cycle services across essential infrastructure networks with in the telecommunications and utilities sectors. It's involved in design, construction, maintenance and operations.
The company recently released its FY20 half-year result. Revenue increased by 43% to almost $500 million, operational earnings before interest, tax, depreciation and amortisation (EBITDA) rose by 50% to $58.1 million and adjusted earnings per share (EPS) increased by 14% to almost 8 cents per share. However, statutory EPS grew by only 1%.
Service Stream continues to win new contracts and it's exploring other growth avenues. I think it looks like a good buy at just 14x FY20's estimated earnings.
It also currently has a grossed-up dividend yield of 6%.
Webjet Limited (ASX: WEB)
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%.
Sounds great, right? The B2B WebBeds business is expected to be a strong performer for Webjet over the coming years.
However, FY20 may prove to be a pretty rough year for the statutory earnings because of the Thomas Cook collapse as well as worries about the coronavirus. So far global travel hasn't been affected too much except between China and some countries.
But, whatever happens, the effects of the coronavirus should only be around for a few months, so Webjet could be a long-term opportunity after the short-term volatility. It could also be a takeover target during 2020, which would provide shareholders with an obvious capital gain boost.
It's currently trading at just 14x FY21's estimated earnings.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
Soul Patts has been growing for decades. If you had invested $1,000 into Soul Patts shares in 1979 it would have grown in value to over $395,000 at a compound annual growth rate of 16.1% per annum, assuming dividends were re-invested.
The next 40 years aren't likely to show as much growth, but I fully expect the business will be around in 40, 50 and 60 years. The investment conglomerate is set up for long-term success with its aligned management, long-term investment focus, multi-generational employee base, uncorrelated investments and strong balance sheet.
The appeal decision about the merger between TPG Telecom Ltd (ASX: TPM) and Vodafone Australia could be announced on Thursday, so it could be a great time to buy before the decision is announced.
Foolish takeaway
Each of these businesses are trading at much lower prices than their 52-week highs, but I believe all three have an excellent chance of beating the market over the next three years, though Soul Patts would be my preferred pick of the three today.
