I think there are some ASX shares that a worth a spot in almost every investor's portfolio.
Most investors should focus on creating the best total returns they can. That means the best return when adding both capital growth and dividends together.
A business like Telstra Corporation Ltd (ASX: TLS) may offer a decent dividend yield today, but its capital return has been very disappointing over the short-term and long-term.
The best total returns are going to come from businesses that can deliver good capital growth. I think these two ASX shares are worth buying in a heartbeat:
Pushpay Holdings Ltd (ASX: PPH)
Pushpay is a leading payments business. It facilitates digital giving to clients – large and medium US churches are the main target area for Pushpay.
COVID-19 has obviously been a difficult time for churches. Restrictions and people's cautiousness have meant that electronically donating is a very useful service. Pushpay even provides a livestreaming option for churches to connect with their congregations.
There's a clear tailwind for Pushpay at the moment. But it's the underlying economics that really attract me at the moment.
In just one year (FY20) the ASX share managed to grow its gross profit margin from 60% to 65% as it grew its revenue by 32% to US$129.8 million. That shows it's a very scalable business. Pushpay is aiming for US$1 billion of revenue from US churches over the long-term. Its gross profit margin could go much higher in the coming years.
In FY21 the business is aiming to at least double its earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) to US$50 million. If growth continues to be faster than expected then Pushpay could continue to beat its own guidance, as it did in FY20.
When you compare Pushpay's valuation to other ASX tech shares, I think it looks much more reasonable. At the current Pushpay share price it's valued at 35x FY21's estimated earnings.
Citadel Group Ltd (ASX: CGL)
Citadel is another software business that I think looks like a good value buy right now.
The ASX share offers software to clients to help manage their data. It serves reliable sectors like education, defence and healthcare.
FY20 was a transformative year after the business acquired UK healthcare software business Wellbeing. Looking at the underlying numbers, total software revenue increased by 35.7% to $47.5 million and total services revenue grew by 26.7% to $80.1 million, meaning total revenue grew by 29.4% to $128.4 million. Total underlying EBITDA grew by 25.3% to $29.2 million.
Citadel thinks there are a range of cross selling opportunities for the company to take advantage of. The UK software can be sold into Australia, the Australian software can be sold into the UK and the combined package can be sold to new markets.
Citadel is steadily shifting to a recurring revenue model, which comes with higher profit margins. That should mean that more of the additional revenue is turned into profit.
The ASX share is targeting double digit organic growth as well as new verticals, plus acquisition opportunities. It can grow the business in many different ways. I think this optionality is exciting for investors.
As a bonus, Citadel offers a grossed-up dividend yield of 3.5%. It maintained its dividend at 10.8 cents per share in FY20.
At the current Citadel share price it's trading at 13x FY22's estimated earnings.
Foolish takeaway
I think both of these ASX shares look very good value for the growth they could achieve over the next couple of years and the long-term. As technology shares I believe they have good operational advantages compared to most other sectors, which hopefully leads to growing profit margins and market-beating returns.
