Despite the painful falls for growth shares witnessed this year, many experts still insist certain companies are still overvalued.
That's because compared to their earnings, the share price is still a high multiple.
It's not a massive surprise though, as the 2022 correction has come after a decade-long bull market for growth stocks. By November last year, there certainly were some ASX shares trading at astronomical price-to-earnings (P/E) ratios.
If a business had a PE multiple of 100 a year ago and now trades at 50, then it's not unreasonable to say it is still expensive.
But just judging a stock by its PE ratio is overly simplistic.
Certainly, the analysts at QVG Capital believe this, as two ASX shares they love fit into this category.
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Market leaders will keep surprising us
The QVG team holds both WiseTech Global Ltd (ASX: WTC) and IDP Education Ltd (ASX: IEL) in its Long Short Fund.
"They are both 'highly rated' (expensive) on a one year forward multiple but we know near term earnings are the wrong lens [to] view these companies," read their memo to clients.
"Wisetech and IDP Education both have globally leading products and are early in their long runway of global growth."
Both companies enjoyed a warm reception from investors over last month's reporting season.
Logistics software maker Wisetech saw its shares soar 17.3% over August, while international education provider IDP rose almost 22% over July and August.
It was no surprise for the QVG team, considering they are both leaders in their fields.
"Also, businesses like IDP and Wisetech with dominant products, high customer value propositions and good unit economics tend to surprise positively along the journey," read the memo.
"The earnings beat/raises we saw this reporting season from them are an example of that."
Arrested development
The QVG analysts also loved another ASX share that was on the way to becoming another WiseTech or IDP Education.
"Nearmap Ltd (ASX: NEA) is somewhat analogous — albeit earlier stage and more capital intensive," read the memo.
"But our return from Nearmap was effectively 'front ended' as they agreed to a takeover at a 40% premium."
Indeed, a private capital buyer Thoma Bravo will acquire the mapping technology company at $2.10 per share.
The QVG team regrets that it won't be able to fully realise the investment potential of Nearmap. But there is a bright side.
"Whilst we're disappointed in not reaping return over the journey as Nearmap scales, the ability for us to take our return upfront and redeploy the capital into other opportunities is good compensation."
