I think that ASX shares can do a great job of growing your wealth. I’m not expecting to be able to turn $3,000 into $3 million. However, I think the three ideas in this article could deliver much stronger returns than the market over the next decade.
To deliver big returns I think you need to find businesses that are at least reasonably small (and have room to go), have international growth aspirations (for a large addressable market) and are priced at a reasonable valuation today.
Pushpay Holdings Ltd (ASX: PPH)
Pushpay is one of my highest-conviction ASX share ideas right now. It’s an electronic donation business which helps clients like large and medium US churches to receive money digitally.
FY20 was really strong. Total processing volume rose 39% to US$5 billion and total revenue increased by 32% to US$129.8 million. It was the year that the ASX share proved it has passed an important stage where its profits are now clearly positive and rising quickly.
The ASX share’s earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) improved by US$23.5 million to US$25.1 million. Operating cash flow improved by US$26.3 million to US$23.5 million – there was negative cashflow of US$2.8 million last year.
The Pushpay business is really scalable. In FY20 alone it grew its gross profit margin from 60% to 65%, it also increased its EBITDAF margin from 17% to 22%. That increase in profitability was just from a US$31.4 million increase in revenue. Over the long-term the ASX share is aiming for US$1 billion of revenue.
In FY21 alone Pushpay is looking to at least double its EBITDAF to US$50 million. At the current Pushpay share price it’s trading at 38x FY21’s estimated earnings.
Bubs Australia Ltd (ASX: BUB)
Bubs is a promising infant formula business, which specialises in goat milk products. FY20 was a strong year with full year revenue increasing by 32% to $62 million. Most importantly, Bubs infant formula sales rose by 58% to $30 million. Infant formula sales represented 55% of group revenue.
It’s this growth of infant formula which is the most important aspect for future growth. It’s the segment that could deliver the most growth over the coming years and it has a high gross margin of 40%. To put that in context, Bubs’ normalised gross margin improved from 21% to 24%. The higher percentage of sales that infant formula is, the more profitable that Bubs will be.
The ASX share has done well in Australia, it’s now sold across a large amount of retail stores including Coles Group Limited (ASX: COL), Woolworths Group Ltd (ASX: WOW) and Baby Bunting Group Ltd (ASX: BBN).
But it’s the international growth that excites me most. Direct sales to China increased 32% to $13 million and export markets outside of China delivered a five fold increase in sales. If international sales can keep growing strongly over the long-term then Bubs could become a much larger business.
With a share price under $0.80 and a market capitalisation under $500 million, I think the Bubs share price represents good value.
Redbubble Ltd (ASX: RBL)
In FY20 the artist-produced product store company saw marketplace revenue grow my 36% with gross profit going up 42% and operating earnings before interest, tax, depreciation and amortisation (EBITDA) rising by 141%.
The ASX share is now free cashflow positive and it ended with a closing cash balance of $58 million.
The decision to start selling masks was a clever one. It really helped the fourth quarter where marketplace revenue grew 73%, and gross profit grew by 88%.
In the first month of FY21 the ASX share’s marketplace revenue grew by 132% with similar sale levels in the first two weeks of August.
I think Redbubble is on track to deliver a strong FY21 result and may benefit from improving economies of scale over the coming years. It has a network of 37 fulfillers across 10 countries and 41 locations. Redbubble is steadily expanding its product lines, which should hopefully diversify and improve earnings.
Redbubble is an attractive way to diversify away from Australian retail sales, as less than 6% of its sales are in Australia.
The Redbubble share price still looks good value to me considering it generated $38 million of free cashflow in FY20 and and the likely future growth.
In the long-term the company is targeting revenue of $1 billion, compared to FY20’s marketplace revenue of $349 million. There is plenty of room for growth, with a much higher profit margin.