Looking for ASX growth shares? I rate these 2 as buys

I think two picks look capable of producing major gains.

| More on:
A happy boy with his dad dabs like a hero while his father checks his phone.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investing is all about delivering positive results over the longer term, and ASX growth shares can produce strong returns due to their rise in underlying value and earnings compounding.

In five years from now, investors want their portfolios to be worth substantially more than they are today. Here are two ASX growth shares that I believe can produce excellent returns in the coming years.

Temple & Webster Group Ltd (ASX: TPW)

Temple & Webster is a leading online retailer of homewares, furniture and home improvement products.

The Temple & Webster share price has fallen by around 25% since 27 March 2024, as shown in the chart below. However, its ongoing business progress indicates that this is a much more compelling time to buy than a few months ago.

At a time when many Aussie households are struggling amid a high cost of living and elevated interest rates, the business has been growing its market share.

In a recent trading update, Temple & Webster revealed total sales were up 30% from 1 January 2024 to 5 May 2024. The company said the overall furniture and homewares market was down 4% in the half-year to date.

Products exclusive to Temple & Webster are now generating more than 40% of revenue which helps entrench its market position. Its trade and commercial and home improvement segments have both seen growth of over 30% in the half to date.

The ASX growth share has also been tapping into AI to improve efficiencies and margins. AI has helped boost the conversion rate by more than 10% and is now handling around 40% of all customer interactions.

As Temple & Webster grows, I think it can achieve greater profit margins, particularly as its fixed costs as a percentage of revenue reduce. I'm excited by the company's ongoing expansion into other areas, such as home improvement, because that's a big market category (including paint, plumbing fixtures, flooring, window furnishings and so on).

I'm a shareholder today in this ASX growth share because I believe in the company's long-term future.

VanEck Morningstar Wide Moat ETF (ASX: MOAT)

This exchange-traded fund (ETF) focuses on some of the leading businesses in the United States, and I think it has the potential to deliver good returns.

While many companies are listed in the US, their underlying earnings usually come from around the world. This gives the VanEck Morningstar Wide Moat ETF more geographic diversification than it appears.

For this portfolio, Morningstar analysts only choose stocks whose share prices they believe are trading at an attractive level compared to their fair value. In other words, they rate a business as being materially undervalued.

In addition, the MOAT ETF only includes businesses that Morningstar believes have economic moats that are almost certainly going to endure for the next decade and, more likely than not, persist for the next two decades.

I'm calling it an ASX growth share because of its ability to deliver strong returns. From the ETF's start date to 31 May 2024, it has delivered an average annual return of 15.3%, though past performance is not indicative of future returns.

Motley Fool contributor Tristan Harrison has positions in Temple & Webster Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Temple & Webster Group. The Motley Fool Australia has recommended Temple & Webster Group and VanEck Morningstar Wide Moat ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Opinions

A miner stands in front oh an excavator at a mine site
Opinions

3 reasons ASX uranium stocks can keep charging higher into 2025

I think the recent sell-down in ASX uranium stocks has been overdone. Here’s why.

Read more »

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Opinions

3 reasons to be positive on ASX 200 shares in FY25 (and 3 to be wary)

Vinay Ranjan from Airlie Funds Management says we should ignore market noise and buy quality stocks.

Read more »

A businessman hugs his computer and smiles.
Opinions

2 outstanding ASX 200 shares to buy and hold for a decade

I think these ASX 200 shares will continue to reward investors for years to come.

Read more »

A group of three men in hard hats and high visibility vests stand together at a mine site while one points and the others look on with piles of dirt and mining equipment in the background.
Opinions

Down 40% in under 3 years, is the Lynas share price due a bounce?

Is there any hope for Lynas shares?

Read more »

A man in a suit looks serious while discussing business dealings with a couple as they sit around a computer at a desk in a bank home lending scenario.
Share Market News

Is there any chance of an interest rate cut in Australia next week?

Here's what the experts think will happen.

Read more »

Happy woman holding $50 Australian notes
Opinions

2 ASX shares with strong cash flows

These ASX shares boast excellent cash flows and are inexpensive to buy, in my view.

Read more »

A photo of a young couple who are purchasing fruits and vegetables at a market shop.
Consumer Staples & Discretionary Shares

Buying Coles shares? Here are key metrics you'll want to know

Grab a coffee and join me in this fun financial analysis exercise for Coles.

Read more »

woman consoles robot
Opinions

Is this ASX small-cap stock an overlooked beneficiary of the AI boom?

Some industry experts anticipate power shortages. Can this ASX company benefit from this trend?

Read more »