I love the idea of investing in S&P/ASX 200 Index (ASX: XJO) shares for my child. Buying shares with young children in mind is a long-term focus as it's still many years until they become adults. That leaves plenty of time for compounding to do its wonderful thing.
Investing in the right exchange-traded fund (ETF) can come with pleasing capital growth. But I think some particular individual names have a lot more growth potential.
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Lovisa Holdings Ltd (ASX: LOV)
Lovisa is an affordable jewellery retailer with over 100 stores in Australia and more than 800 stores globally.
The business makes a good profit from its typical store, and it doesn't cost much to open a new store because of how low-cost the products are to produce.
Therefore, the company's store rollout program is key to its long-growth outlook. In FY23 it added 172 net stores.
The ASX 200 share has only just entered a number of markets including Canada, Mexico, Spain, Hong Kong, Taiwan, China and Vietnam. When you look at the potential of those new markets, the US and other existing markets, they add up to a huge addressable market for Lovisa.
If the business can keep adding more than 100 extra stores to its network each year, I think its overall sales and net profit after tax (NPAT) can keep scaling. In ten years, I think Lovisa could become a much bigger business.
The broker UBS estimates Lovisa could generate earnings per share (EPS) of $1.52 in FY28, which suggests it could be valued at 16 times FY28's estimated earnings.
Johns Lyng Group Ltd (ASX: JLG)
Johns Lyng is an ASX 200 share that specialises in restoring buildings and contents after insured events, including fire, storms, flooding and so on.
The business is expanding in a number of different ways, which I think will help it deliver impressive profit growth and, hopefully, share price growth.
This ASX 200 share can grow its core business geographically – it's already working on growing in countries beyond Australia – at this stage, it's in the US and it recently entered New Zealand. The company has indicated more geographic growth could occur.
It's working hard on expanding its catastrophic response services, which saw revenue growth of more than 100%. This is a natural fit with its core work.
I'm also excited by the synergies that John Lyng is creating by expanding into other areas where it can bring its expertise and cross-sell. It's making acquisitions in the body corporate/strata management space. Another growth area it has recently expanded into includes smoke alarms, fire, gas, and electrical testing and compliance.
If all of these divisions can keep growing for a number of years, Johns Lyng can become a much bigger business and make much more profit in the coming years.
