I think investors should always focus on ASX shares that can grow operationally and improve their profit over the long term. Sometimes, stocks can be good buys even if they're trading at close to 52-week highs.
Businesses that are increasing their underlying value can help deliver shareholder returns. ASX shares with a history of winning can keep winning, as long as the valuation doesn't become too extreme.
It's important to remember that as a business grows, its growth rate will likely slow down sooner rather than later. But with the two stocks below, I think there's still plenty of growth to come over the long term.
Tuas Ltd (ASX: TUA)
This is an ASX telco share that operates in Singapore and it's growing at an impressive pace. As shown on the chart below, the Tuas share price has rocketed upwards almost 47% this year to $4.66, which is near its 52-week high.
I think there are two key reasons why the company is so exciting: its ongoing subscriber growth and operating leverage.
If the subscriber numbers are growing, it means the ASX share is gaining market share and growing revenue. In the FY24 first-half result, its active mobile services increased year over year from 35.7% to 938,000, marking a 14.5% rise since the second half of FY23.
When profit margins increase, it means that the bottom line can increase faster than revenue. HY24 saw revenue increase 38% to $54.7 million, and earnings before interest, tax, depreciation and amortisation (EBITDA) jump 56% to $22.4 million. The EBITDA margin improved from 36% to 41%.
If Tuas can keep growing subscribers, then I expect its profit will accelerate. It's targeting full-year positive net cash flow in FY24. The business expects subscriber numbers to keep rising in the second half of FY24, which can enable it to keep investing in its business.
REA Group Ltd (ASX: REA)
REA Group is the business that owns realestate.com.au, the leading property portal in Australia. The REA Group share price has risen more than 6% this year to around $195.40, close to its 52-week high, as shown on the chart below.
According to REA Group, it receives 130 million average realestate.com.au monthly visits, 4.1 times more visits than the nearest competitors each month on average. Its strong market position allows the business to implement sizeable price increases with little detrimental effects. The company has implemented an average 10% price increase on the product with the highest penetration, Premiere+.
With the digital infrastructure already designed, the increased revenue can help drive the ASX share's profit higher at a faster pace. For the nine months to 31 March 2024, revenue rose 20% to $1.06 billion, EBITDA increased 23% to $594 million, and free cash flow jumped 39% to $322 million.
I'm also excited by the company's potential in India, a country with a huge population steadily adopting digital services. In the FY24 third quarter, REA India's revenue increased 31% year over year.
If REA's primary businesses can continue to grow revenue, then I believe the profit and share price can also increase over time despite the current high valuation.
