ASX growth shares that are primed to deliver a lot of expansion could be attractive opportunities for the long term. Compounding can help today's numbers for businesses and investors become much bigger in the future.
If a business is exposed to a long-term tailwind, the revenue can receive a very useful boost to its financials in the coming years. Strong operational performance may assist the company to grow even quicker and gain market share.
With that in mind, these three ASX growth stocks may achieve a lot of success over the next decade and could be worth $2 billion.
Propel Funeral Partners Ltd (ASX: PFP)
Propel is the second-largest funeral operator in Australia and New Zealand. As the saying goes, there are only two things certain in life – death and taxes. Propel's earnings are consistent year to year, providing a good earnings base for growth.
I think the company can grow its market capitalisation from around $620 million as it grows its net profit after tax (NPAT).
There are three reasons why I think Propel's profit can keep rising – projected growth of the number of funerals, rising revenue per funeral and improving profit margins.
According to the Australian Bureau of Statistics, death volumes in Australia are expected to increase by 2.4% per annum between 2023 to 2030 and 2.5% between 2030 to 2040. That's a useful growth rate for funeral growth, and acquisitions could help grow its market share further.
The business is seeing ongoing growth in its average revenue per funeral, which has increased by an average of around 3% since FY14 and it increased by approximately 6% in FY22.
Scale is helping the company's operating net profit grow faster than revenue – in FY23 revenue rose 16% and operating profit rose 17.9% to $20.9 million.
Temple & Webster Group Ltd (ASX: TPW)
E-commerce is another area that's seeing attractive long-term growth as more people do more shopping online. Temple & Webster is one of the leading online retailers in Australia.
It sells over 200,000 products from hundreds of suppliers, with those products sent directly to customers, reducing the company's inventory holding requirements.
The company also has a private label range sourced by the ASX growth share from overseas suppliers.
Australia's furniture and homewares market is following a similar path as the US and UK when it comes to digital adoption. In 2022, online sales made up around 18% of the sector, compared to 27% to 28% for the US and UK.
In FY23, the company's revenue was $396 million and it's hoping to grow that to more than $1 billion, helped by millennials becoming the largest spending cohort in the category. It's targeting online market share growth from 10% to 15%. Growth of its trade and commercial and home improvement segments could also help because these segments increase the company's total addressable market.
The company is expecting profit margins to increase as it becomes a larger business.
Kogan.com Ltd (ASX: KGN)
Kogan has an e-commerce platform that sells various products like TVs, phones, other wearable technology, computers, appliances, garden, furniture and so on.
It has over 400,000 Kogan First subscribers, who are paying members and typically bigger spenders. In FY24 to October 2023, Kogan First subscribers had grown 10.7% compared to FY23.
Kogan.com's overall proportion of repeat customers continues to grow – in FY21 it was 61%, in FY22 it was 68% and this grew to 72% in FY23. That's good news for regular revenue, and the company also doesn't need to spend as much on marketing for these customers to come back (which is helpful for margins).
The company has been doing well at achieving operational efficiency in recent times. In the second half of FY23, it reduced its variable costs as a percentage of gross sales year over year from 9.5% to 8.8%.
As the company's revenue increases, its margins can increase. The e-commerce infrastructure is already built, so increased transaction growth should be very helpful for the earnings before interest and tax (EBIT) margin.
The ASX growth share has a number of levers it can pull for growth, including its new advertising platform to help marketplace sellers and partners reach more customers. The more ways it can grow revenue, the better.
