Some companies are quietly achieving global growth, and I think some of those businesses are worth watching. Remember, not every exciting ASX share needs to be a household name.
We can't know where share prices are going in the short term, but over the long term, if a company grows its profits and executes its strategies, then the returns for shareholders could be pleasing.
I think the ASX companies succeeding overseas can make the best investments because they're targeting much larger markets – Australia has a relatively small population compared to North America, Europe, or Asia.
After their recent share price movements, I'd call the below two ASX shares buys on a three-year or five-year time horizon.
Audinate Group Ltd (ASX: AD8)
This ASX share provides the Dante IP networking offering. It claims to be the worldwide leader and is used extensively in professional live sound, commercial installation, broadcast, public address, and recording studies. It replaces traditional analogue cables with ethernet cables, which can transmit AV signals across large distances to multiple locations.
The Audinate share price has sunk more than 50% over the last six months, as shown on the chart below.
The FY24 numbers were compelling, including revenue growth of 28.4% to US$60 million. However, there are revenue headwinds for FY25, including the re-balancing of inventory holdings across the industry. On top of that, costs are expected to increase between 7% to 9% in FY25.
But I'm positive on the longer-term potential of the ASX share. It's expecting to return to revenue growth in FY26 and more predictable order patterns.
Audinate is expecting its gross profit margin to increase to 80% over the long term. It was 74.3% in FY24.
I'm expecting profit margins to increase in the coming years. We saw that in FY24, revenue rose 27.4% and operating profit (EBITDA) went up by 85% to A$20.4 million.
With expectations of further growth in FY26, a growing number of customers, and ongoing investment in its video offering, I think the future is bright for Audinate shares at this beaten-down valuation.
Step One Clothing Ltd (ASX: STP)
Step One describes itself as a direct-to-consumer online retailer of high-quality, organically grown and certified, sustainable, and ethically manufactured underwear.
The business is growing revenue rapidly. In FY24, Australian revenue grew 18.3% to $50.9 million, UK revenue increased 33.2% to $27.1 million, and USA revenue rose 261.5% to $6.5 million.
The UK and USA markets are much larger than Australia and offer compelling growth potential for the company. There are plenty of other markets, such as Canada, that the company could expand into in the future.
If this ASX share can continue attracting new customers and growing its number of returning customers, then it will be building the foundations for success.
The FY24 result delivered pleasing operating leverage, where profit margins rise, enabling the bottom line to grow faster than revenue. Total revenue in FY24 increased 29.7% to $84.5 million, and net profit after tax (NPAT) grew 43.9% to $12.4 million.
According to the projection on Commsec, the Step One share price is valued at just 20x FY26's estimated earnings with a forecast grossed-up dividend yield of 7%.
