May 2021 could be a good month to find ASX shares that are growing and could deliver good returns.
But the valuations have to make sense too. No business is a buy at any price.
These options may be good long-term ideas:
Reject Shop Ltd (ASX: TRS)
This is one of the largest discount retailers in Australia.
The ASX retail share is well liked by brokers that cover it. For example, Morgan Stanley rates it as a buy with a price target of $10. That implies a potential return of over 60% during the next 12 months. But there’s no guarantee of that.
It’s currently going through a cost-cutting program to ensure that the business has the right cost base to be efficient and profitable. Part of the ASX share’s strategy is to make sure its stores aren’t paying too much rent. It’s willing to close stores where it can’t get lower rental costs.
Once the right cost base has been established, Reject Shop will start opening more stores. It’s also working on an online offering which is important in this post-COVID world.
In the FY21 half-year result, Reject Shop reported that its underlying profit jumped 46.5% to $16.3 million.
According to Morgan Stanley, Reject Shop is priced at 16x FY22’s estimated earnings.
Pushpay Holdings Ltd (ASX: PPH)
Pushpay is an ASX share that has benefited from the COVID-19 environment where digital payments and technology have seen strong adoption.
This business an electronic donation business that facilitates payments to not-for-profit organisations. The key client base is large and medium US churches.
Over the last year the Pushpay share price has gone up by 73%. Profit has gone up a lot too. In the FY21 half-year result it reported that profit doubled.
The business is looking to increase its addressable market by targeting smaller churches in the US and it’s also looking for geographic diversification such as potentially growing into South America.
Margins are also increasing at a fast pace. Remember that HY21 result saw profit double, despite revenue ‘only’ rising by around 50%.
According to Commsec, the Pushpay share price is valued at 31x FY22’s estimated earnings.
Pacific Current Group Ltd (ASX: PAC)
Pacific is an ASX share that partners with global investment managers to help them grow. Some of its investments include GQG, Victory Park, ROC and Astarte Capital Partners.
Management fees can generate a reliable source of annual income at quite high margins. Pacific is currently rated as a buy by Ord Minnett, with a price target of $6.70.
The broker expects Pacific’s management profitability to keep growing as it keeps a lid on expenses.
In the quarter ending 31 March 2021, Pacific reported strong inflows across the portfolio including GQG, ROC, Carlisle, Proterra and Victory Park. The investment into Astarte could be astute if it delivers on its medium-to-long-term potential. The quarter saw organic funds under management (FUM) rise another 8.9%. FUM growth doesn’t match profit growth though, due to Pacific’s different investments and economic terms with each manager.
Pacific is expecting capital raising success in 2021 and 2022.
According to Ord Minnett, Pacific has a grossed-up dividend yield of around 9% and it’s trading at 11x FY21’s estimated earnings.