ASX growth shares can deliver much stronger returns for investors if we buy at the right price.
A business that is growing its revenue/profit at over 10% per annum has a much better chance of delivering market-beating returns, in my view. Scaling up with operating leverage can make a big difference to the net profit after tax (NPAT) over time, which is usually what many investors are focused on.
If I had $1,500 to invest in ASX growth shares today, I'd likely pick one of these three.
Volpara Health Technologies Ltd (ASX: VHT)
Volpara is an ASX healthcare share that specialises in providing software for breast screening and analysing those images to better understand the patient's risk.
The company is doing an excellent job of growing quickly. In the FY24 first quarter, the business reported that cash receipts were up 27% to NZ$11 million. It's expecting to be operating cash flow positive in FY24, a year ahead of guidance.
When we combine the strong revenue growth with the fact that the gross profit margin was 92.5% in FY23, it's clear that the company's gross profit can rapidly accelerate, with potential for other profit margin measures to be elevated in the future.
In the longer term, growth in Europe and expansion of its lung cancer unit could be very promising in my opinion.
Frontier Digital Ventures Ltd (ASX: FDV)
This ASX growth share has investments in leading online emerging marketplaces (such as South America, Asia etc). Two key areas where its marketplaces operate are property and vehicles.
I think that digital marketplaces have strong revenue growth potential in the countries where it operates because of the level of future e-commerce adoption.
The ASX growth share is now demonstrating positive profitability as well.
In the first three months of FY23, it reported its first quarter of operative cash flow of $0.6 million. There was also a 190% increase in portfolio earnings before interest, tax, depreciation and amortisation (EBITDA) to $2 million, with 12 of the 15 operating companies seeing an EBITDA improvement year over year.
The operating leverage of the online marketplace model is compelling to me.
In three to five years, I believe the Frontier Digital Ventures share price could be much higher. Indeed, if it just gets back to where it was a year ago, it'd rise around 90%. It's down heavily despite being the most profitable it has ever been.
Lovisa Holdings Ltd (ASX: LOV)
Lovisa is an ASX growth share that sells affordable jewellery to younger shoppers. Its biggest presence was in Australia (163 stores) at the end of the FY23 first half, but the USA is rapidly catching up where there's a much bigger population – during HY23 the US store count grew by 37 to 155.
Total global stores rose by 86 during the FY23 first half, finishing at 715. If Lovisa's store count keeps growing at this pace (or faster) every six months over the next five years, it could become a much bigger company and achieve much stronger profit.
One of the added bonuses of this company is that it has been steadily increasing its dividend since 2020.
Commsec earnings estimates put the Lovisa share price at under 20 times FY25's estimated earnings, with a possible grossed-up dividend yield of around 6%.
