S&P/ASX 200 Index (ASX: XJO) growth shares can be excellent investments to own if they deliver on their earnings potential.
Compounding is a very powerful force. As Albert Einstein once supposedly said:
Compound interest is the eighth wonder of the world. He who understands it, earns it, he who doesn't, pays it.
The stronger a business is compounding its earnings, the faster it's growing its underlying earnings over the years.
So, which companies are growing at a strong pace and could continue on that path for years to come? Below are two ASX 200 growth shares I really like.
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Xero Ltd (ASX: XRO)
Xero is a cloud accounting provider with a global presence. It has subscribers in a number of countries including Australia, the UK, New Zealand, the US, Singapore, South Africa, Canada and more.
The Xero share price is currently 16% cheaper than it was on 19 February 2025, as the chart below shows, following the US tariff-induced volatility.
The company is delivering growth in all of the right ways.
In the FY25 half-year result, the ASX 200 growth share announced subscriber growth of 6% to 4.19 million, average revenue per user (ARPU) growth of 15% to $43.08, operating revenue growth of 25% to $996 million, operating profit (EBITDA) growth of 51% to $311.7 million and net profit after tax (NPAT) growth of 76% to $95 million and free cash flow growth of 96% to $208.7 million.
It's demonstrating pleasing operating leverage, with its profit margins increasing as it gets better, making this year's additional revenue more valuable than last year's. Net profit grew by 76%, far exceeding revenue growth of 25%.
The ASX 200 growth share also reported that its gross profit margin improved to 88.9% in HY25, up from 87.5% in the first half of FY24.
TechnologyOne Ltd (ASX: TNE)
There's a lot to like about this ASX tech share – it describes itself as Australia's largest enterprise software company, with locations in six countries. Its main offering is a global software as a service (SaaS) enterprise resource planning (ERP) solution that "transforms business and makes life simple" for customers.
One of the main attractions of the software is that it's available on any device, anywhere and any time, and it's "incredibly easy to use". That may explain why it has over 1,300 customers across corporations, government agencies, local councils and universities.
The company's FY24 result was impressive, in my view. Total revenue increased 17% to $515.4 million. Meanwhile, expenses only grew by 16%. This allowed profit before tax (PBT) to climb 18% (beating guidance of between 12% to 16%).
A big part of the company's growth story is the net revenue retention (NRR), where it generates more revenue from its existing customer base. The NRR was 117%, meaning its existing customer base contributed 17% of the revenue growth. It's partly able to continue unlocking more revenue because it's investing 25% of its revenue into research and development. This makes its software more useful for clients.
The company has a long-term target of NRR of 115%, which would allow the business to double in size in five years. The average annual recurring revenue (ARR) from its customers has grown from $100,000 in FY12 to almost $400,000 in FY24.
The ASX 200 growth share is aiming to grow its ARR to $1 billion by FY30 and achieve a profit before tax margin of 35% in the coming years. The future is looking bright for this company.
