2 top ASX growth shares that could be buys

The two ASX growth shares in this article could be top ideas.

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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.

Should you invest $1,000 in ELMO right now?

Before you consider ELMO, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and ELMO wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Elmo Software. The Motley Fool Australia owns shares of and has recommended Class Limited and Elmo Software. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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