The S&P/ASX 200 Index (ASX: XJO) is home to some exciting businesses with long-term growth potential. August could be the right month to invest in some of the most compelling ASX 200 shares.
For investors who want to beat the market, I think it's important to find businesses that are growing and undervalued for the earnings they may generate in the coming years.
If I were given $10,000 to invest in ASX 200 shares, there are some names that would come to my mind straight away, which I'll discuss below.
Collins Foods Ltd (ASX: CKF)
Collins Foods is one of my favourite ASX 200 growth share ideas at the moment because of how simple its strategy is. The business is a large operator of KFC restaurants in Australia, Germany and the Netherlands. All it needs to do is expand its store network to increase its scale and profit generation potential.
The FY24 result saw its revenue increase 10.4% to $1.49 billion, and underlying net profit after tax (NPAT) grow by 15.6% to $60 million. It made underlying earnings per share (EPS) of 51 cents and paid an annual dividend per share of 28 cents (up 3.7%).
The broker UBS forecasts EPS could grow to 53 cents in FY25 and then rise over 60% by FY28 to 86 cents. That means the Collins Foods share price could be valued at 10x FY28's estimated earnings right now.
Xero Ltd (ASX: XRO)
I'd call Xero one of the leading ASX tech shares. It's one of the few businesses from ANZ that have succeeded significantly overseas.
It offers accounting, business, and payroll software so that accountants, business owners, and other users can do their jobs effectively and efficiently.
This ASX 200 share has pleasingly grown its subscriber numbers to more than 4 million. Users seem to love the offering, with Xero having a retention rate of approximately 99% each year, despite the price rises the company occasionally enacts.
Software businesses are incredibly scalable – it doesn't cost much to provide software to a new user. Xero's gross profit margin is close to 90%, so additional revenue from here could be very helpful to the company's bottom line.
The broker UBS forecasts Xero could make NZ$987 million of net profit in FY29 – this would be growth of 464% compared to FY24. Revenue is expected to grow by 117% between FY24 and FY29, reaching NZ$3.7 billion.
Qantas Airways Ltd (ASX: QAN)
Qantas is Australia's largest airline, and it has a strong market share, which may be even stronger after the recent troubles at Regional Express Holdings Ltd (ASX: REX).
The ASX 200 share recently decided to cut former CEO Alan Joyce's remuneration for FY23 by more than $9 million. Not only may that help restore customer confidence in the airline, but it should also boost the ASX 200 share's bottom line.
One of the main reasons why I'm bullish about the company is its loyalty division's ongoing growth. This segment is expected to achieve underlying earnings before interest and tax (EBIT) of between $500 million and $525 million in FY24 and then deliver growth of around 10% in FY25. By FY30, the business is targeting an underlying EBIT of between $800 million and $1 billion.
According to the projection on Commsec, the Qantas share price is valued at just 6x FY25's estimated earnings. It's projected to start paying a dividend of 17.8 cents per share in FY25, which would be pleasing for investors seeking income.
