Some of the best ASX shares to buy right now could be the ones that appear pricey today.
That may not seem to make sense, but over time, it's often the high-flyers that keep on performing over the long term. Just look at how long companies such as Pro Medicus Ltd (ASX: PME) and REA Group Limited (ASX: REA) have been growing — and outperforming.
The market has usually already recognised the underlying quality of these businesses, so they're not likely to be priced cheaply for their current earnings. However, the market may still undervalue the future earnings these businesses may generate, which is why these top ASX shares can outperform over the long term.
However, a key part is that they must still have the potential to grow strongly over the long term. I think the below two ASX shares have exceptional long-term earnings growth potential.
Temple & Webster Group Ltd (ASX: TPW)
Temple & Webster claims to be Australia's largest pure-play online-only retailer of furniture and homewares.
The business released a trading update yesterday, which shows that it's still growing at a very impressive rate after multiple years of strong growth.
In the release, Temple & Webster announced its revenue was up 21% in the financial year to date (to 24 October), with a growing market share (which reached 2.3% in FY24). In addition, its profit margins were on target despite increases in international freight rates.
Despite the headwinds of the current economic environment, the company advised average order values had returned to growth. Also, approximately 60% of orders are now from repeat customers, showing that the business has a large and growing loyal customer base.
The company's balance sheet is in a strong position, with more than $100 million of cash and no debt.
Temple & Webster is aiming to generate $1 billion of annual revenue within three to five years (from FY23). Management said in its annual general meeting (AGM) update that it was on track for this goal. I don't think the business is going to stop growing at $1 billion in revenue.
Management believes Australia is still at an early point in the online adoption cycle, especially in the furniture and homewares category, having reached an online penetration of around 20%. In contrast, the United States and the United Kingdom are close to 30%.
I think the ASX share's profit margins can increase significantly thanks to the scale benefits provided by its operating model of a digital platform, as well as the implementation of technology and AI throughout its business.
TechnologyOne Ltd (ASX: TNE)
TechnologyOne provides enterprise resource planning (ERP) software for clients including corporations, government agencies, local councils and universities.
This ASX tech share invests significantly each year in research and development, which adds a lot of value for existing subscribers and supports increasing revenue from those clients. TechnologyOne has a goal of growing its revenue by existing subscribers by 15% per year. Revenue can double in five years if it achieves that target.
The company aims to achieve $500 million of annual recurring revenue (ARR) by FY25 and $1 billion of ARR by FY30.
The ASX expects profit margins to rise as more of its revenue comes via its software-as-a-service (SaaS) offering. Rising revenue and profit are exciting prospects for me.
TechnologyOne has been steadily growing for a long time and is predicted to keep growing. According to the forecasts on Commsec, at the current TechnologyOne share price, it's valued at 45x FY26's estimated earnings.
