Companies growing at a fast rate are some of the most exciting stocks to own because of the power of compounding. The fund manager Wilson Asset Management has outlined two high-growth ASX shares that investors should to pay attention to.
The investment team in charge of the listed investment company (LIC) WAM Research Ltd (ASX: WAX) is looking for the most compelling undervalued growth opportunities in the Australian market.
The WAM Research portfolio is invested across a variety of sectors including healthcare, telecommunications, travel, discretionary retail and so on.
Both businesses that WAM highlighted in the WAM Research portfolio have a heavy tech element and are delivering strong growth. Let's take a look at these names.
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Temple & Webster Group Ltd (ASX: TPW)
WAM describes Temple & Webster as Australia's leading online homewares and furniture platform.
The fund manager said that during July, the Temple & Webster share price rose thanks to "rising online retail confidence, improved consumer discretionary spending and supply logistics normalisation market optimism alongside improving sector and macroeconomic conditions."
WAM points out that the high-growth ASX share is reliant on its drop-shipping e-commerce business model, which has benefited considerably from structural growth in online furniture and homewares retail sales alongside easing supply chain constraints.
The fund manager explained why the outlook is positive for the business:
With disposable income stability supporting discretionary retail spending, Temple & Webster Group stands to benefit from further interest rate cuts and eventual recovery in the housing market.
Gentrack Group Ltd (ASX: GTK)
The other company that WAM highlighted was the utility and airport enterprise software business, Gentrack. It provides billing, customer and operations management software for businesses around the world.
WAM noted that the Gentrack share price declined in July (by 15%). This was mostly due to the loss of an Australian customer contract that the fund manager "understands was in part driven by management's decision to withdraw from the process given a deterioration in contract profitability."
While not important to the company's revenue in the coming financial years, the loss impacted the market's confidence about the company's competition and contract retention, according to WAM.
The fund manager pointed out Gentrack maintained its medium-term guidance, projecting revenue growth at a compound annual growth rate (CAGR) of more than 15%. The operating profit (EBITDA) margin is expected to be between 15% to 20% after expensing all development costs.
WAM concluded:
We believe the company is well positioned to secure a number of contract opportunities in the near-term which has the capacity to drive a re-rating. In other words, the fund manager is expecting the high-growth ASX share to recover.
