Motley Fool Australia

Why the Nearmap share price and one other are on my buy list

blackboard drawing of hand pointing to the words buy now
Image source: Getty Images

ASX growth shares can be a little more volatile than the market as a whole. They often experience considerable swings in value created largely by market sentiment. However, I believe it’s important to focus more on business fundamentals rather than short-term share price movements. This is because in the short term, a company’s share price is often not representative of the value of its underlying business. However, I believe this changes over longer-term holding periods.

With this in mind, following are 2 ASX growth shares I currently own but would be happy to double down on next week, based on today’s prices.

The Nearmap Ltd (ASX: NEA) share price

Despite Nearmap being one of the 10 most shorted shares in June, I would still place this ASX growth share on my buy list. The Nearmap share price has soared more than 150% since its March lows. This is despite it recently pulling back along with the rest of the S&P/ASX 200 Index (ASX: XJO) amid concerns over a second wave of coronavirus.  

In fact, the Nearmap share price has been on a crazy rollercoaster over the last two years. However, its business has been growing strongly. Both here in Australia and New Zealand (ANZ), as well as in North America (NA). The company’s NA market includes both the United States and Canada. Not only has Nearmap’s subscription base been growing at an 11% compound annual growth rate, but its average revenue per subscription (ARPS) has also been growing at a compound annual growth rate of 22% in NA and 12% for the more mature ANZ region. Combining these for its most recent half, the group achieved growth in its annualised contract value of 23% over the prior corresponding period. 

In addition, the company has recently launched ‘Nearmap AI’ which should help to drive ARPS growth in the future. It also has a massive total addressable market (TAM). Nearmap’s TAM is estimated to be around $1.6 billion to $2.75 billion. Moreover, these figures only represent markets the company currently operates in. On this note, Nearmap’s CEO Rob Newman has expressed a desire to become a global leader and believes the company’s unique business model has the potential to scale to multiple geographies around the world.

I believe Nearmap’s business model has proven itself in ANZ and shown scalability in the NA market. Additionally it is on track to reach cash flow breakeven by the end of June 2020. Nearmap’s closing cash balance is expected to be between $32 million and $35 million by the financial year’s end. I believe the company will continue to grow in its current markets and push into new ones. In my eyes, this makes today’s Nearmap share price a very compelling buy. 

The Medical Developments International Ltd (ASX: MVP) share price

You’ve probably heard of Medical Developments’ flagship product, the ‘green whistle’. The green whistle is used by medical practitioners, paramedics, life savers and others to administer emergency pain relief. It contains the drug Penthrox and is advocated by many as superior to other pain relief medications. This is thanks to it being fast-acting, non-addictive and able to be self-administered. Uptake of the green whistle has exploded, with the number of countries around the world selling it rapidly increasing over the past decade. This is reflected in the company’s sales which have increased 42% for its UK market and 35% for the European market for H1FY20.

However the Medical Developments business doesn’t start and end with the green whistle. In fact, the green whistle only accounts for a little over half its revenue. A stat which may soon change. The remaining majority of the company’s revenue comes from its medical devices segment, followed by a much smaller veterinary segment. The medical devices segment includes space chambers, masks and other devices and was the company’s fastest growing segment in H1FY20. Total sales in this segment grew 49% compared to the prior corresponding period, with US sales up 49% and UK/Europe sales climbing by 73%.

Medical Developments also noted an increase in R&D investment. I believe this should also bode well for this ASX growth share’s future. While I don’t think today’s prices are necessarily ‘cheap’, thanks to its future growth prospects as it increases sales and enters more markets, I would be happy making a long term investment in Medical Developments next week.

Man who said buy Kogan shares at $3.63 says buy these 3 ASX stocks now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

In this FREE STOCK REPORT, Scott just revealed what he believes are the 3 ASX stocks for the post COVID world that investors should buy right now while they still can. These stocks are trading at dirt-cheap prices and Scott thinks these could really go gangbusters as we move into ‘the new normal’.

*Returns as of 6/8/2020

Michael Tonon owns shares of Medical Developments International Limited and Nearmap Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Medical Developments International Limited and Nearmap Ltd. The Motley Fool Australia has recommended Medical Developments International Limited and Nearmap 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.

Related Articles...