I think the best way to beat the share market is to go for growth shares that are trading at good value.
Every investor has the option of investing in a quality, cheap exchange-traded fund (ETF) like iShares S&P 500 ETF (ASX: IVV) and BetaShares Australia 200 ETF (ASX: A200). But if you can find those shares that will deliver market-beating earnings growth at good prices then you could be onto the winner.
That’s why I like the idea of these three shares:
Webjet Limited (ASX: WEB)
The travel business has seen its share price soar after reporting its half-year result which saw underlying earnings before interest, tax, depreciation and amortisation (EBITDA) rise by 43% to $86.3 million.
WebBeds has cemented its position as the number two player and now accounts for over 60% of group EBITDA and is ahead of its plan for a 50% EBITDA margin. In the half-year result WedBeds grew EBITDA by 81% to $57.3 million.
The Thomas Cook impact was a negative, but investors now know the impact. The coronavirus has meant that Webjet wasn’t able to upgrade its FY20 guidance. At this stage it has reduced its second-half guidance by $7 million to $15 million, though it’s not sure of the full effects.
The coronavirus is expected to be one-off, but FY21 should be another year of strong growth.
It’s now trading at 15x FY21’s estimated earnings, which is still cheap considering how fast the company is growing.
Cleanaway Waste Management Ltd (ASX: CWY)
Cleanaway is another business that is worth watching. The waste management business has seen solid growth in the half-year result with underlying net revenue growth of 0.5%, earnings before interest and tax (EBIT) growth of 6.8% and earnings per share (EPS) growth of 15.2%.
The company said it’s on track on for its 2025 plan with the integration of Toxfree on track, it has completed the SKM acquisition with the integration commenced.
Reflecting the leadership’s confidence, the interim dividend was increased by 21.2%.
Cleanaway can benefit over the long-term from a shift to recycling within Australia, the increase in a circular economy and a growing population.
It’s now trading at 27x FY21’s estimated earnings.
Both of these shares are worth buying in my opinion, even after today’s share rises. I prefer Webjet with how cheap it looks, but I think they could be good market-beaters over the next two years.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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.