2 top ASX growth shares leading brokers say ‘buy’

Xero is one of the leading ASX growth shares that have been rated as a buy.

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Key points

  • Experts are backing these two ASX growth shares
  • Xero is rated as a buy by Ord Minnett, with its global subscriber growth
  • HR software business ELMO is experiencing tailwinds from the adoption of cloud systems

Leading brokers are always on the lookout for opportunities that look good. ASX growth shares could be the answer after the recent sell-off.

Some business valuations are much lower amid volatility after the Russian invasion of Ukraine and the talk of rising interest rates.

With that in mind, here are two businesses that those leading analysts like:

Xero Limited (ASX: XRO)

Xero is a world leader when it comes to cloud accounting software. It has a global subscriber base, with significant numbers in Australia, the United Kingdom and New Zealand.

Since the start of 2022, the Xero share price has declined by around 30%.

The broker Ord Minnett has called Xero a buy, thinking it’s not the same sort of company as the no-profit businesses that have been sold off heavily this year.

Ord Minnett believes that Xero can benefit from the tailwinds that the ASX growth share is seeing. The price target is $107.

The Xero CEO Steve Vamos himself acknowledged how the environment benefited Xero when he commented in the FY22 half-year result release:

Small businesses around the world increasingly recognise the critical importance of digital tools to help them adapt to, and succeed in a change operating environment. This is reflected in Xero’s half-year 2022 performance, where we delivered strong revenue and subscriber growth.

That result saw operating revenue growth of 23% to NZ$506 million, subscriber growth of 23% to 3 million and the gross profit margin increased 1.4 percentage points to 87.1%.

ELMO Software Ltd (ASX: ELO)

ELMO is another software company that helps businesses. It provides HR and payroll software to small and medium businesses in Australia and the UK.

Morgan Stanley currently rates ELMO as a buy with a price target of $7.80. That implies an upside of approximately 80%.

The company continues to launch new modules that can provide more services to customers, increase customer loyalty, and make more revenue.

For example, it launched the ‘hybrid work’ and ‘wellbeing’ modules to customers a few weeks ago to manage the new way of working.

In the first six months of FY22, the company continued to report growth. HY22 revenue rose by 41% to $43.1 million year on year. Annualised recurring revenue (ARR) was up 35% to $98.3 million compared to 30 June 2021.

The ASX growth share also made positive earnings before interest, tax, depreciation and amortisation (EBITDA) of $0.3 million.

The company said its UK acquisitions were performing “exceptionally well and provide a solid foundation” to increase market share in the region.

ELMO said that it was continuing to experience increased demand as more organisations adopt cloud-based technology to manage different workforces.

FY22 ARR is expected to be between $107 million to $113 million. It’s also expected to generate between $1.5 million to $6.5 million of EBITDA in FY22.

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 and has recommended Elmo Software and Xero. The Motley Fool Australia owns and has recommended Elmo Software and Xero. 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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