ASX shares with strong growth potential could really be worth looking into because of the potential for them to generate good shareholder returns.
Businesses heavily involved in technology could be fruitful areas to think about.
These two ASX shares may be able to do well:
VanEck Vectors Video Gaming and eSports ETF (ASX: ESPO)
This is an exchange-traded fund (ETF) offered by the provider VanEck, which is a global provider of exchange-traded products.
VanEck Vectors Video Gaming and eSports ETF, according to VanEck, gives investors exposure to a diversified portfolio of the largest and most liquid companies involved in video game development, eSports and related hardware and software globally.
It invests in businesses that are positioned to benefit from the increasing popularity of video games and eSports. The ETF looks to give exposure to companies that make a lot of their earnings from video gaming.
This investment is an interesting way of getting exposure to a global tech sector that isn’t dominated by Apple, Amazon, Facebook and Alphabet.
Which shares are in the portfolio? NVIDIA, Tencent, Advanced Micro Devices, Sea, Nintendo, Activision Blizzard, Netease, Take-Two Interactive Software, Nexon and Electronics Arts are the ten biggest holdings.
The country weightings are quite diversified considering there are only 25 holdings. The US gets 38.5% of the weighting, then Japan with 21.1%, China with 18.4%, Singapore with 6.6% and South Korea with 5.3% being the last holding with an allocation of over 5%.
It has an annual management fee of 0.55%. The ETF has only been around since September 2020, however the index has been around for longer and done very well – over the last three years it has made an average return of 31% per annum.
Temple & Webster Group Ltd (ASX: TPW)
Temple & Webster has seen its share price climb significantly over the last year, making it one of the best-performing ASX shares.
It describes itself as Australia’s leading pure play online retailer of furniture and homewares. Temple & Webster’s operating model runs where products are sent directly to customers by suppliers, which helps faster delivery times and reduces the need to hold inventory, which means it can offer a larger product range.
The retailer also has a private label range, which is sourced directly from overseas suppliers. These products can come with higher profit margins.
It’s heavily focused on growth. Scale comes with operating leverage and higher levels of profitability. This should be helped by improved supplier terms, more repeat customers which will reduce marketing expenses, a slowing of investment in fixed costs and a higher percentage of private label products with higher gross margins.
Temple & Webster is going invest heavily to achieve longer-term returns. For example, it’s going to build strong brand awareness to achieve national brand status within three years to drive both first time and repeat customers.
During this scale up phase, it will be focused on revenue growth and further expanding its market leadership. This will result in a financial profile similar to the pre COVID-19 period. It’s referring to strong double digit revenue growth and earnings before interest, tax, depreciation and amortisation (EBITDA) margin levels of around 2% to 4%. It’s committed to remaining profitable during this period.
In a trading update, the ASX share said it generated 112% revenue growth in the third quarter of FY21 and April revenue growth of more than 20%.