ASX growth shares are capable of delivering strong returns because of their ability to compound revenue and earnings over time.
There could be a big difference by the end result between growing revenue at an average of 5% per year compared to growing at 10% per year.
Which stocks are opportunities? Names like Xero Ltd (ASX: XRO), WiseTech Ltd (ASX: WTC), and Pro Medicus Ltd (ASX: PME) receive considerable attention.
But experts say there are other lesser-known names out there that could make strong investments. I'm going to outline two businesses with an exciting future that are rated as buys by UBS.
PEXA Group Ltd (ASX: PXA)
PEXA describes itself as a digital property exchange and data insights business. Since 2013, the business has facilitated more than 20 million property settlements. Around 90% of all property transfer settlements that occur in Australia are processed on the PEXA platform. In 2022, the business launched its refinancing capability in the UK.
UBS currently rates PEXA as a buy with a price target of $15.75. A price target is the broker's projection of the share price finishing in 12 months from the time of the investment call. With that price target, the broker suggests this ASX growth share could rise by more than 30% in the next year.
The company delivered significant operating growth in the first half of FY25, with revenue growth of 25% and operating profit (EBITDA) growth of 24%.
With its PEXA Exchange, the business saw "continued solid performance" from critical national infrastructure, supported by high customer satisfaction, market growth, share and transaction mix improvement, and CPI-linked repricing.
Its international platform development is on schedule, with UK lender engagement, improved performance, and reduced cash outflows.
The digital solutions business is "scaling with strong revenue growth driven by demand from existing and new customers, operating EBITDA at breakeven".
UBS commented on the ASX share:
In Australia, navigating regulatory pricing reviews to sustain Exchange profitability is key though we believe risks here are manageable. In the UK, conversion of bank conversations to contracts is now required. Progress reports here appear encouraging and with PXA's current share price attributing negligible value here in our view, we see compelling upside if key milestones are achieved over the next year.
According to UBS' numbers, the ASX growth share is valued at 13x FY28's estimated earnings.
TechnologyOne Ltd (ASX: TNE)
Another business that UBS really likes is TechnologyOne.
This company says it provides a global software-as-a-service enterprise resource planning (ERP) solution that "transforms business and makes life simple" for customers. It has more than 1,200 businesses, government agencies, local councils, and universities as customers.
UBS currently rates TechnologyOne as a buy, with a price target of $33.80. That implies a possible rise of more than 10% from its current position.
UBS is expecting the ASX growth share to achieve $77.4 million in profit before tax (PBT) in the first half of FY25 (with the report due in two months) and make $180.8 million in PBT in FY25. That would mean annual year-over-year growth of 18.2% if that's what it achieves.
In FY24, the business achieved total annual recurring revenue (ARR) of $470.2 million. It's expecting to surpass $500 million in ARR in the first half of FY25 and reach at least $1 billion in ARR by FY30.
Part of its growth model is to add more capabilities to its software for subscribers, enabling the business to target at least 15% revenue growth per year from its existing client base.
The UK could be a major growth driver in the coming years. In FY24, its UK ARR rose by 31%, though it is only a small piece of TechnologyOne's pie currently.
It plans to continue investing heavily in research and development to drive future growth while also being open to acquisitions.
