There are some high-quality ASX shares that I think could be much bigger in five years from now.
Businesses that can grow their revenue significantly in the coming years have an excellent chance of delivering higher profit margins because of the various scale benefits of being larger.
When fast-growing businesses have their eyes on large addressable markets (and growth targets), they can be compelling investments if they deliver on that growth.
Below are two of my favourites. Although their share prices have lifted recently, I think they can outperform over the long term.
Temple & Webster Group Ltd (ASX: TPW)
Temple & Webster is a leading online retailer of furniture, homewares and home improvements.
Revenue growth is a key part of this investment — in FY24 alone, the company saw 26% revenue growth to $498 million. This was driven by a 31% growth of active customers to 1.1 million. Excitingly, the business saw year-over-year revenue growth of 26% for the period of 1 July to 11 August 2024.
Within two to four years, the ASX share aims to reach $1 billion in revenue, with at least $800 million in furniture and homewares revenue and $200 million in home improvement and business-to-business revenue.
Temple & Webster wants to become the 'top-of-mind' brand in its category, with a majority of revenue coming from exclusive products. The company says it has leading capabilities around data, AI, and technology. Its growing scale can help lower its fixed costs as a percentage of revenue, particularly due to its online business nature.
In the long term, the business aims for a business-as-usual earnings before interest, tax, depreciation, and amortisation (EBITDA) margin of at least 15%.
The broker UBS thinks Temple & Webster could generate $1.1 billion of revenue in FY29, suggesting significant growth in the coming years if that prediction comes true.
Lovisa Holdings Ltd (ASX: LOV)
Lovisa is a leading ASX retail share that sells affordable jewellery, predominately to younger shoppers. It's not just an Australian retailer though, it has a global network that continues to rapidly expand its store numbers.
At the end of the FY24 first half, the company advised that it had 854 stores, an increase of 53 from the end of FY23 and a rise of 74 compared to the end of the FY23 first half.
While the business had 175 stores in Australia at the end of HY24, it had less than 20 stores in other countries, such as Singapore, Hong Kong, Taiwan, China, Vietnam, Namibia, Botswana, Spain, Belgium, the Netherlands, Austria, Switzerland, Poland, Italy, Hungary, Romania, UAE, Canada, Mexico, the Middle East, Africa, and South America.
There is an extraordinary opportunity for the ASX share to significantly increase its store count in the coming years. In fact, I think Lovisa can double its store count in the next five years, which could help profit grow even faster because of operating leverage.
In the FY24 half-year result, Lovisa's net profit rose 12% despite difficult trading conditions and the company's investments in opening new stores and expanding into new countries. I'm expecting a lot of profit growth over the next five years.
