ASX growth shares can be some of the best investments to own because of their potential to become much larger. They're well-suited for patient investors.
The faster a business grows over the years, the quicker its underlying value increases.
The two investments I'm going to highlight have already delivered excellent results. In five years, I expect both of them to be significantly larger and provide investors with market-beating returns, even though their current valuations may be higher than the overall market.
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TechnologyOne Ltd (ASX: TNE)
This ASX growth share describes itself as Australia's largest enterprise software company and one of Australia's 100 largest companies, with six locations. It provides a global software as a service (SaaS) enterprise resource planning (ERP) solution.
It has more than 1,300 subscribers across businesses, government agencies, local councils and universities. They clearly like it because the company's churn rate has been around 1% in the last two financial years – it holds onto nearly all of its subscribers each year.
One of the key growth areas for the business is its annual net revenue retention (NRR) target of 115%. In other words, it wants to generate 15% more revenue from its existing customer base each year. If that happens, its revenue doubles every five years. It invests significantly in its software on behalf of clients to unlock that revenue growth.
The company is investing in growth in the UK. In the first half of FY25, its UK annual recurring revenue (ARR) grew by 50% year-over-year to $43.1 million. That is a large market for the company to tap into in the coming years.
Thanks to the software nature of what the ASX growth share sells, I'm expecting its profit margins to increase in the coming years, further adding to the growth of its bottom line. In five years, I believe the TechnologyOne share price is likely to be noticeably higher.
Betashares Global Quality Leaders ETF (ASX: QLTY)
There are a number of strategies we can use to identify the best businesses on the ASX. But, there are significantly more top-quality ideas outside of Australia – places like the US, Japan and Europe can be great regions to find opportunities.
While this isn't an individual company, I'm calling this exchange-traded fund (ETF) an ASX growth share because we can buy it on the ASX.
This fund looks to invest in the highest-quality businesses in the world with a number of attractive features such as a high return on equity (ROE), earnings stability and strong balance sheets.
When companies are regularly growing profit and re-investing it for a high rate of return, that is a great tailwind for pushing up their share prices.
There are approximately 150 holdings in the portfolio, with the biggest position only having a weighting of 2.5% – this shows there is a pleasing level of diversification within the fund. Its largest three positions include Arista Networks, Alphabet and Amphenol.
Past performance is not a guarantee of future performance, but since inception in November 2018, it has delivered an average return per year of 14.7%.
