ASX growth stocks can be some of the most exciting investments to own because of how their compounding can deliver significant gains for our portfolio. I'll show you how much of a difference stronger returns can make to the end result.
If someone starts with $1,000 and grows by 5% per year, it will turn into $1,629 after ten years.
Now, let's assume that $1,000 grows by an average of 10% per year—it would grow to $2,594 after a decade.
If the investment achieved a strong return, say 15% per year, the $1,000 would become just over $4,000 in ten years.
I want to own ASX growth stocks that could make double-digit returns over the long term. I already own one of the investments below, and I'm excited about both.
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VanEck MSCI International Small Cos Quality ETF (ASX: QSML)
While this isn't an individual company, I'm calling it an ASX growth stock because we can buy it on the ASX, and it gives access to a large number of global growth stocks.
The idea of this fund is to provide exposure to 150 of the world's highest-quality small companies.
A company needs three fundamentals to make it into this portfolio: a high return on equity (ROE), earnings stability, and low financial leverage. In other words, these companies make a lot of profit based on how much shareholder money is retained within the business, the profit doesn't typically drop, and the balance sheet has low debt.
Smaller companies may have more growth potential than their larger counterparts because they are earlier on their growth journey. Small stocks have more time ahead to reach maturity.
Past performance is not a guarantee of future performance, but the QSML ETF has returned an average of 14.75% per year between its inception date of March 2021 and 30 November 2024. I think this demonstrates the level of returns this fund (and the underlying companies) can produce.
Lovisa Holdings Ltd (ASX: LOV)
This ASX growth stock sells affordable jewellery to younger shoppers through its global store network.
My bullishness on the company relates to how much more its store count could grow. In FY24, the company grew its global store count by 12.3% to 900, which helped revenue rise 17.1% to $698.7 million.
At the end of FY24, the business had 178 stores in Australia. However, as of June 2024, it had less than 10 stores in plenty of other countries that could support significantly larger store counts, including Taiwan, China, Vietnam, Spain, the Netherlands, Austria, Italy, and Mexico.
The US (207 stores) and Canada (14 stores) are two other countries that could support significant store growth in the coming years.
I'm optimistic Lovisa can double its store count in the next several years, which could be a significant tailwind for earnings. Thanks to scale benefits, I believe the business expansion will lead to rising profit margins.
The forecast on Commsec suggests the ASX growth stock's earnings per share (EPS) could grow to $1.01 in FY26, implying the current Lovisa share price is valued at approximately 30x FY26's estimated earnings.
