ASX growth shares can provide the strongest returns over the long term thanks to the power of compounding.
Businesses that can grow significantly from where they are today can really benefit shareholders.
It's particularly exciting when businesses plan to expand over the long term, which is why I'm attracted to smaller companies that are earlier on their growth journeys. With that in mind, I like the potential of the two stocks below.
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VanEck MSCI International Small Cos Quality ETF (ASX: QSML)
This is an ASX-listed exchange-traded fund (ETF) that aims to provide investors with exposure to a diversified portfolio of 150 small-cap growth stocks from 'developed' markets.
This is not just a portfolio of tech companies; in fact, more than a third of the portfolio (35.7%) is invested in industrial businesses. Three other sectors have double–digit weightings: financials, IT, and consumer discretionary. I like the diversification on offer.
One of the main reasons why I like this fund so much is that it's focused on quality small-caps. I'm calling this an ASX growth share because we can buy it on the ASX.
To earn a place in the portfolio, businesses need to display three traits: a high return on equity (ROE), earnings stability, and low financial leverage. In other words, they earn strong profits for the amount of shareholder money within the business, their earnings don't usually go backwards, and they have low levels of debt for their size.
Pleasingly, over the last three years to June 2025, the QSML ETF has returned an average of 19.2%. Of course, past performance is not a guarantee of future performance when it comes to returns of that size.
Guzman Y Gomez Ltd (ASX: GYG)
In terms of how much larger an ASX growth share could become, I think GYG is one of the most exciting options to consider.
At the end of the FY25 third quarter, the Mexican food business had 211 restaurants in Australia. It aims to reach at least 1,000 Australian locations over the next two decades. That alone is exciting, but the business also has 20 locations in Singapore, four locations in Japan, and six in the US.
If the business can grow its presence in each international market to a meaningful scale, that could be a useful boost to earnings. It has also already demonstrated a willingness to expand overseas, so I expect expansion to other countries in the future (such as Canada and the UK).
But this is not just a store rollout story. Its sales at existing locations are also performing strongly. Comparable sales for Australia, Singapore, and Japan rose 11.1% year over year in the FY25 third quarter, helping total network sales grow 23.6% year over year.
Finally, this ASX growth share is the type of business I expect can deliver pleasing operating leverage, where profit margins improve as it gets bigger and each restaurant serves more customers.
In the FY25 half-year result, GYG reported revenue growth of 27%, operating profit (EBITDA) growth of 28.3%, profit before tax growth of 51.4%, and net profit after tax (NPAT) growth of 91.2%.
I think this company has a long growth runway ahead of it.
