Over the long-term, some of the best businesses to own have been ASX growth shares because of their substantial profit growth and the subsequent share price gains that have spurred.
But, many of the ASX's most compelling companies now trade on very high price/earnings (P/E) ratios such as Pro Medicus Ltd (ASX: PME) and WiseTech Global Ltd (ASX: WTC) which have P/E ratios of well over 100.
Where are we supposed to look for cheaper opportunities?
I suggest we look at businesses that have compelling futures and plans for growth. The valuation doesn't seem as demanding as the high-profile stocks I've referred to. Below are two stocks I view as appealing.
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Beacon Lighting Group Ltd (ASX: BLX)
This ASX growth share claims to be Australia's leading retailer and trade supplier of lighting, ceiling fans, and electrical accessories. It has more than 120 Beacon Lighting stores, a wholesale division, and international sales offices in Hong Kong, Germany, and the US.
Expanding its store network is one of the easiest ways this company can grow its earnings and underlying value. It currently has 127 stores, and management has identified the potential for 195 stores in Australia, which implies a possible increase of 53% from today's level.
The company is also growing its market share in Australia's residential electrical wholesale market. Beacon Lighting is trying to partner with more electricians, builders, architects and interior designers by offering special prices, referral benefits, free lighting design, free delivery and other perks.
One of the areas of this ASX growth share I'm most excited about is the international segment because of the large addressable market. Beacon's international division is expanding its offering to new sales channels and customers and attending international lighting fairs in Hong Kong, Dallas, and Frankfurt.
The Beacon Lighting share price is valued at 24x FY24's earnings, which I think is a very reasonable P/E ratio for a business that's executing on multiple growth avenues.
Webjet Group Ltd (ASX: WJL)
Webjet recently split into two businesses, with the WebBeds business now operating separately as Web Travel Group Limited (ASX: WEB). The Webjet business now includes the online travel agency (OTA) business Webjet, the car and motorhome hire business GoSee and travel product software Trip Ninja.
As shown on the chart below, the Webjet share price is down 20% since 27 September 2024 and I think this is a good time to pounce.
In Webjet's recent FY25 first-half result (HY25), the company noted that the Australian economy remains slow and that ongoing cost-of-living pressures are subduing demand for travel, particularly domestic travel.
Why am I optimistic about that? When it comes to cyclical businesses like ASX mining shares and ASX discretionary retail shares, I believe the right time to invest is when there's weakness in the sector, the outlook is poor, and share prices are down.
I believe Webjet has shown its quality and business intelligence during this period by adjusting its focus to higher revenue margin opportunities, selling more 'ancillaries' to customers, increasing international flight bookings and controlling costs. Webjet OTA's revenue per booking is now higher than before the COVID pandemic. This combination of positives has boosted Webjet's profitability – the HY25 result saw a 1% increase in operating profit (EBITDA) despite an 8% decrease in bookings.
I believe that if/when travel demand eventually rebounds, whether that's in 2025 or further away, the ASX growth share's profit could significantly benefit. I'm optimistic both the company's profit margin and the Webjet share price can noticeably improve in the next couple of years, so I'm willing to be patient.
