This year has been a fascinating and painful one for ASX growth shares. Strong inflation and higher interest rates have punished the valuations of many assets.
But, as Warren Buffett's famous advice goes, "be fearful when others are greedy, and greedy when others are fearful".
Investors have certainly become fearful during this year. ASX growth shares have taken a hit as long-term growth isn't worth as much today because of higher interest rates (due to discounted cash flow valuations).
Buffett once explained why interest rates matter so much:
"The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are, the less that present value is going to be. So every business, by its nature…its intrinsic valuation is 100% sensitive to interest rates."
I think the current environment has made the below two ASX growth share options attractive:
Betashares Nasdaq 100 ETF (ASX: NDQ)
This is an exchange-traded fund (ETF) that gives exposure to 100 of the largest non-financial companies listed on the NASDAQ. It comes with an annual management fee of 0.48%.
Plenty of the top holdings are probably recognisable to readers: Apple, Microsoft, Amazon.com, Alphabet, Tesla, Nvidia, PepsiCo, Meta Platforms, and Costco.
While a lot of the portfolio is invested in tech-related companies, there are other sectors represented in the holdings, including utilities, industrials, consumer staples, and so on.
I think names like Apple and Microsoft have resilient earnings – smartphones and Microsoft Office software seem very embedded in daily life.
I do feel higher interest rates have reduced the intrinsic value of many businesses, but some share prices have fallen significantly. It's not often we get the chance to buy, for example, Microsoft shares 28% lower than where they were at the start of a year.
The Betashares Nasdaq 100 ETF price has dropped 26% in price in 2022, so I'm thinking this ASX growth share is good value today for the long term.
Despite the decline, over the past three years it has delivered an average return per annum of 15.2% to 31 October 2022.
Gentrack Group Ltd (ASX: GTK)
The Gentrack share price is another that has taken a dive this year – it's down more than 25%.
Gentrack says it designs, builds and delivers "cloud-first revenue and customer experience solutions found at the heart of leading utilities and airports around the world".
Momentum seems to be returning to the business. It's yet to report its FY22 result for the year to 30 September 2022, but in February 2022 and May 2022, it advised that annual revenue was going to be $115 million (up from FY21 revenue of $105.7 million).
It had also said that FY22 earnings before interest, tax, depreciation and amortisation (EBITDA) was expected to be in the "low single digits" in terms of how many millions of dollars it expects to make.
But at the end of September, it said it's forecast to make revenue of $125 million and that EBITDA is expected to be in the mid-to-high single digits of millions of dollars.
The ASX growth share continues to win new customers as well as expand with existing clients.
It has also said that it's "well-positioned to capture the sizeable market opportunity created by the transformation of the utilities and airports across the world".
I think the opening up of borders can also have a useful impact on the airport software side of the business, as airports will have more earnings to spend.
Gentrack itself is growing its investment in research and development, as well as sales and marketing. This should help growth in the future.
