ASX growth shares that are growing their revenue rapidly but seem underpriced could be great opportunities to jump on.
When share prices fall, but the long-term seems just as exciting, then this makes the valuation much more attractive in my view.
The power of compounding makes it so that double-digit revenue growth year after year can really build up to a large amount. That's why I really like the look of the two below ASX growth shares.
Lovisa Holdings Ltd (ASX: LOV)
Lovisa is a rapidly growing retailer of affordable jewellery to younger shoppers.
It has a good presence in Australia, but it's the expansion of its store network within existing markets, as well as going into new markets, that excites me the most.
In FY23, we saw revenue rise by 30% to $596.5 million and the store network increase by 27% (or 210 stores) to 801. During the last couple of years, the business has entered a number of countries for the first time, including Hong Kong, Taiwan, Namibia, Botswana, Spain, Poland, Italy, Hungary, Romania, Canada and Mexico.
With the ASX growth share just starting in those countries and rapidly expanding in the US, there is very strong potential for the company to grow its store network to a multiple of what it is today. Despite all the investing it did in FY23, it still managed to grow its net profit after tax (NPAT) by 16.7% to $68.2 million.
I think that the profit growth is very encouraging and that ongoing scale benefits will lead to higher margins for Lovisa.
According to Commsec, Lovisa could grow its earnings per share (EPS) by 55% between FY23 and FY25. It's currently valued at under 20 times FY25's estimated earnings after falling by 13% in September to date. I believe that the price/earnings (P/E) ratio will seem cheap for how much (store network) growth it could achieve after FY25, particularly if/when it expands into mainland China.
Airtasker Ltd (ASX: ART)
Airtasker operates a platform that enables people who need a task to connect with people who are willing to do that task. This can be for almost any task category including removalists, photography, car work, gardening, furniture assembly, food delivery and many more.
The ASX growth share continues to deliver top-line growth, despite tricky economic conditions. FY23 total revenue increased 40% to $44.2 million and gross marketplace volume (GMV) went up 34% to $253.5 million – those numbers benefited from the Oneflare acquisition, but the Australian Airtasker marketplace grew revenue by 13% to $33.7 million.
For me, the more exciting growth number was that the total gross profit rose 42.6% to $41.75 million – that showed that the company's high gross profit margin has remained above 90% (and increased thanks to Oneflare).
Despite the ASX growth share's strong levels of investment to deliver growth in the US and UK, it was able to report that group earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 53.1% to a loss of $8 million.
With such a high gross profit margin, I believe revenue growth in the UK and US will be significantly beneficial for its profitability in the coming years. In FY23, UK GMV rose 34.6% to £3.7 million and US posted tasks increased 158% to 64,000. These two markets are much bigger than Australia due to their population sizes.
Airtasker believes it's on track to be positive free cash flow in FY24, which would be a very positive step in my opinion.
