ASX growth shares can be excellent investments for investors willing to focus on the long term.
But, fast-growing businesses aren't a buy at any price, the valuation still needs to take into account the company's future prospects. We should always ask ourselves whether the share price is attractive enough to realistically deliver good returns.
Interest rates can make a difference to valuations. The RBA has reduced the cash rate twice already this year, which is a supportive tailwind for asset prices. Further predicted rate cuts could help even more.
Thinking with a long-term mindset, let's consider the attractiveness of the following two ASX growth shares after recent strong performance.
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Temple & Webster Group Ltd (ASX: TPW)
Temple & Webster is a leading online homewares and furniture retailer, which sells hundreds of thousands of products. A large proportion of them are shipped directly from suppliers, which decreases the company's need to hold inventory (making it capital light) and can also improve shipping times.
I've been impressed by the company's ability to use AI in various parts of its business, including customer chat interactions, which help reduce costs and increase customer conversion.
A couple of months ago, the ASX growth share reported a trading update with accelerated growth. Revenue between 1 January and 5 May 2025 increased 18% year over year. Its profit margins continue to impress, with the operating profit (EBITDA) margin expected to be "towards the top end of guidance range".
Pleasingly, its additional growth avenue of home improvement products is going well. In the half-year to date (1 January 2025 to 5 May 2025), the company reported revenue growth of 42% compared to the comparable period in 2024.
In the last year, the Temple & Webster share price has gone up 140%. I'd prefer to buy at the price a year ago than the valuation today.
I'll note that this ASX share could be more volatile than the overall share market, like we saw during 2022. But, as a shareholder myself, I'll hold through any volatility in the future, if that happens.
So, I'm not expecting notable gains in the short term, but I believe the ASX share is on track for strong performance in the long term, particularly if it keeps gaining market share and increasing margins.
Xero Ltd (ASX: XRO)
Xero is one of the most successful ASX shares at growing beyond ANZ. It's a cloud accounting software provider that has become a major player in the UK market and wants to be a large competitor in North America.
The ASX growth share is benefiting from several positive elements, including rising average revenue per subscriber (thanks to price rises), lengthening customer loyalty, a high retention rate, and increasingly impressive profit margins.
In the FY25 result, Xero reported an increase in the gross profit margin to 89%, up from 88.2%. Combined with operating revenue growth of 23%, this helped EBITDA grow 28%. Also, net profit after tax (NPAT) increased 30% and free cash flow jumped 48%.
If the business can continue gaining subscribers, particularly in the northern hemisphere, then I'd be very confident about the company's long-term potential. But, I'm not expecting strong gains in the short term following a 24% rise in the last year.
