I think the best way to invest into ASX shares is to buy and hold them for the long-term. Hopefully for a decade or more.
But you shouldn’t invest in shares for the long-term just for the sake of it. I think it only makes sense to go for long-term shares that could produce very good results for a long time.
ASX blue chips may do okay, but I believe that smaller shares are the way to go:
City Chic Collective Ltd (ASX: CCX)
City Chic is an ASX retailer. It sells plus-size women’s clothing, footwear and accessories. It also has websites for different brands in the US like Avenue and Hips & Curves as well as its own brands. Plus, the company has marketplace and wholesale partnerships with US retailers like Macys and Nordstrom. It also has a wholesale business with European and UK partners like ASOS and Zalando.
The ASX share continues to report impressive growth. In FY20 it delivered sales of $194.5 million, which represented 31% total sales growth. It managed to achieve comparable sales growth of 0.4% in FY20 despite the store closures. Excluding the closed period, comparable store sales growth was 6.4%.
City Chic announced that it generated $26.5 million of underlying earnings before interest, tax, depreciation and amortisation (EBITDA). I think that’s a solid number considering how much it invested for growth.
The company is cleverly acquiring competitors in the US that have run into financial difficulty. They will be reopened as online-only offerings, which offers plenty of operating and cost benefits.
At the current City Chic share price it’s trading at 23x FY22’s estimated earnings.
Bubs Australia Ltd (ASX: BUB)
Bubs is a fast-growing infant formula business which specialises in goat milk products. It has made enormous progress over the past four years and I think it could be on track for a strong decade with the amount of growth that it’s displaying.
In FY20 Bubs announced that gross revenue grew by 32% to $62 million. Its fourth quarter infant formula sales rose by 20% and direct Chinese sales increased by 26%. Most impressively, other export market sales grew by 71% and accounted for 8% of revenue for the quarter.
It’s the international markets that make me very excited about the long-term potential of this ASX share. I’m not expecting incredible growth over the next three months, but I think over the next ten years I think the ASX share can grow into a much larger business if it keeps reporting solid double-digit sales growth every year.
It has a solid balance sheet, a strong supply chain and the company is expecting positive EBITDA in FY21, assuming no negative surprises from COVID-19. Bubs is also expecting the gross profit margin to keep going up.
Pushpay Holdings Ltd (ASX: PPH)
Pushpay is a business that facilitates digital giving to not-for-profit organisations. Currently, Pushpay’s biggest customer base is large and medium US churches which have big congregations. Pushpay helps its clients stay connected by offering livestreaming through its application, which is very useful in this era of COVID-19.
The ASX share grew revenue by approximately a third in FY20. The company is expecting another strong year in FY21. Earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) is expected to double in FY21.
I think Pushpay is an exciting prospect for the next decade. It’s targeting US$1 billion of annual revenue from the US church sector. Achieving that goal would turn Pushpay into a much bigger business. There are other religions in the US and other churches outside of the US that Pushpay could target in the future.
At the current Pushpay share price it’s trading at 33x FY22’s estimated earnings.
I think each of these ASX shares have great long-term growth potential. As smaller caps, they have much more room to grow. It’s hard to say which one will deliver the most growth. My guess would be Pushpay because of its high gross profit margin and operating leverage, so I’d buy that one first.
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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of PUSHPAY FPO NZX. The Motley Fool Australia owns shares of and has recommended BUBS AUST FPO. The Motley Fool Australia has recommended PUSHPAY FPO NZX. 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.