ASX growth stocks are a great option for investors looking to grow their wealth. Compounding can help $5,000 grow into $10,000 in less than eight years.
Over the long-term, shares have returned an average of around 10% per year. That doesn't mean shares will return 10% this year, 10% next year, and 10% in the following year. It could be a 12% return this year, a return of 5% next year, a decline of 7% and then a return of 20%.
That 10% average return is the end result after all of the wars, pandemics, recessions, politicians and so on. Of course, past performance is not a reliable indicator of future returns.
If we can find investments that perform better than 10% per annum, then our portfolios could grow even quicker. Two of the names I'd put my money towards would be the following ideas.
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Johns Lyng Group Ltd (ASX: JLG)
Johns Lyng is the ASX growth stock I've invested the most money toward over the last few months for my own portfolio. I've put my money where my mouth is.
This company describes itself as an integrated building services group, with the core business focused on its ability to rebuild and restore a variety of contents after damage by insured events including impacts, weather and fire.
The company did really well in FY23, growing its revenue by 43.2% to $1.28 billion and growing net profit after tax (NPAT) by 64.3% to $62.8 million.
In FY24, it's expecting to grow its 'business as usual' (BAU) revenue by 18.5% to $1 billion and the BAU earnings before interest, tax, depreciation and amortisation (EBITDA) could grow by 20.1% to $113 million.
It's growing its exposure to catastrophe work, which is helping diversify and grow earnings. In FY23, catastrophe revenue rose by 125.3% to $371 million. There seems to be a growing number of expensive storms, so this may be an unfortunate tailwind for the business in Australia and the US.
I'm particularly excited by the company's comments that it can expand into other countries. It has recently expanded into New Zealand, and additional markets could expand its growth potential.
Johns Lyng has also chosen to expand into other related areas such as strata/body corp services as well as electrical, gas and fire safety and compliance. These are currently small divisions but offer the potential for defensive and growing earnings. It can make a lot of bolt-on acquisitions in this area.
According to Commsec, the ASX growth stock is valued at 32 times FY24's estimated earnings.
Vaneck Morningstar Wide Moat ETF (ASX: MOAT)
This is one of my favourite exchange-traded funds (ETFs) because of the investment style, the returns are just an exciting byproduct. I think it's an ASX growth stock because of how well it has done.
As the name suggests, it's focused businesses that have a wide economic moat. A moat describes how easy it is for competitors to 'invade'. We can think of moats as the competitive advantages.
Competitive advantages can come in many different forms, such as patents, brands, cost advantages and so on. Think of businesses like Visa and Mastercard, they have payment networks that are accepted all over the world, and used by customers globally. They are incredibly hard to compete with.
The MOAT ETF only invests in businesses the Morningstar analyst team thinks have a moat and that is almost certainly going to endure for a decade or two.
Businesses are only added to the portfolio if the analysts think the stock is trading at an attractive price compared to what they think is a 'fair value'.
These are the sorts of businesses that may be able to outperform when markets fall in a recession – stable businesses may seem less worrisome to investors than financial stocks or speculative businesses.
Past performance is not a guarantee of future returns with any ASX growth stock, but the MOAT ETF has returned an average of 16.7% per annum over the last three years.
