ASX growth shares can deliver strong returns if we invest in businesses that can generate good earnings for their current valuation.
The biggest US technology companies may get a lot of investor attention, but there are plenty of compelling businesses on the ASX too.
I'm going to look at two ASX growth shares that the broker UBS really likes, which could deliver strong returns in the next 12 months and beyond.
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CAR Group Limited (ASX: CAR)
UBS describes the company as the leading Australian provider of online automotive classifieds. Plus, it also has sites across motorcycle and marine classifieds. It also has wholly-owned marketplaces in South Korea (Encar), the United States (Trader Interactive) and Chile (Chileautos). It's also the majority shareholder of Webmotors in Brazil.
The company aims to become the global leader in online vehicle marketplaces.
Despite some short-term economic challenges, the broker remains confident on the company's competitive positioning, pricing power and profit margin expansion opportunity for all operations – Australia, Latin America, the US and Asia, driving a strong medium-term and long-term growth profile for the ASX growth share.
The broker also talked about the potential for Trader Interactive to deliver growth:
US conditions remain challenging, but Trader Interactive (TI) continues to gain share. We agree with CAR's decision to support dealers and delay pricing increases and remain confident on TI's competitive positioning and medium-term opportunity, with +12% rev CAGR (FY24-30E) underpinned by: i) ramp-up in new lead model, ii) pricing increases and continued depth penetration; iii) strong media rev; and iv) better consumer confidence from a series of rate cuts…
UBS is forecasting that earnings per share (EPS) could grow at a compound annual growth rate (CAGR) of 12% between FY26 to FY29. With that in mind, the broker sees the valuation as "appealing".
According to the earnings forecast, the CAR Group share price is valued at 40x FY26's estimated earnings.
UBS has a buy rating on the business, with a price target of $45, implying a possible rise of 19% from where it is today over the next 12 months.
Cleanaway Waste Management Ltd (ASX: CWY)
The broker said this ASX growth share is a leading provider of waste management and environmental services in Australia. It operates across 200 solid, liquid and industrial service depots. Its earnings are primarily from the collection, processing and landfilling and recycling of municipal, commercial and industrial waste.
UBS is positive on the core industry tailwinds. The broker said:
Landfill levies continue to increase, Victorian govt cap for WtE will now be 2mtpa (potentially increasing to 2.5mtpa) and the senate enquiry into PFAS suggests that positive trends for CWY are unlikely to slow anytime soon.
The broker is expecting the company to deliver growth that remains "above normal" beyond FY26.
UBS also said that the ASX growth share's plan acquisition plans could help deliver earnings growth in the coming years.
The broker is forecasting Cleanaway could generate net profit after tax (NPAT) of $204 million in FY25 and that this could grow to $366 million by FY29.
UBS currently has a buy rating on the business, with a price target of $3.30. That suggests the Cleanaway share price could increase by 19% within a year.
