There are a few ASX growth shares that are top candidates for potential growth and may represent good value.
Businesses inn the technology space can be particularly attractive potential ideas because of the low cost of adding additional subscribers or users.
The below two could be worth looking at:
ELMO Software Ltd (ASX: ELO)
ELMO offers cloud-based solutions for small and medium organisations to manage their people, processes and pay. It operates in Australia, New Zealand and the UK. It generates revenue under a software as a service (SaaS) model.
The business offers a number of modules, allowing it sell more services to the same client. It makes the client more valuable to ELMO and increases the value of ELMO to the client.
ELMO just released another module called COVIDsecure, which enables businesses to track employees’ vaccination and test status. The company pointed out that many businesses have announced they will be mandating vaccinations among their workforce.
The ASX growth share saw substantial growth in FY21. Revenue increased by 38.1% to $69.1 million, whilst annualised recurring revenue (ARR) went up 52.1% to $83.8 million. Cash receipts increased 38.8% to $79.8 million. It generated $0.3 million of earnings before interest, tax, depreciation and amortisation (EBITDA), which was an increase of $3.3 million.
In FY22, ELMO is expecting more growth. Revenue is expected to reach between $90.5 million to $95.5 million. EBITDA is expected to be between $1 million to $6 million. ARR is predicted by the company to rise to a range of $105 million to $111 million.
Class Ltd (ASX: CL1)
Class is a cloud accounting software business that predominately serves the self-managed superfund (SMSF) sector.
The business has also used an acquisition strategy to grow in the corporate compliance sector. In this segment it has NowInfinity, Smartcorp, Reckon Docs and Topdocs. This gives the ASX growth share the opportunity to diversify its earnings and grow its client relationships.
Class saw FY21 operating revenue and other income increase by 25% to $54.9 million and underlying EBITDA increased 15% to $21.9 million. It maintained its underlying EBITDA margin of 40%, in line with its guidance.
The ‘roll forward revenue’ at 30 June 2021 was $59.8 million, an increase of 21.5%.
Class is thinking about its ongoing growth. It pointed out that it has funded four acquisitions that added to earnings through cash and debt to minimise dilution for shareholders. Management said the balance sheet is “very healthy” and free cash flow from operations is increasing as the business grows and achieves economies of scale.
The ASX growth share has identified a number of further opportunities to grow through acquisition.
Class is currently rated as a buy by the broker Ord Minnett with a price target of $2.40. That suggests the Class share price could rise by 30% over the next 12 months if the broker is right.