The upside of an ASX growth stock can be an intriguing proposition for investors.
Growth stocks attract investors because the stock market tends to value a company on a multiple of its earnings.
This means earnings growth can be a catalyst for share price appreciation. The faster the earnings growth, the quicker the increase in stock price.
Beyond profit and revenue, common traits of successful growth shares include extensive market opportunities and robust business models.
It's important to note that on the flip side, this upside comes with more risk than other investment types like ASX ETFs or blue-chip shares.
This ASX growth stock – I believe – is one to watch as it combines earnings growth, a high demand product, and an attractive stock price.
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Austin Engineering Ltd (ASX: ANG)
Austin Engineering engages in the design and manufacture of customised dump truck bodies, buckets, and ancillary products used in the mining industry.
It operates through Asia-Pacific, North America, and South America.
Its share price is down more than 47% year to date, however it now sits at an attractive stock price relative to fair value.
ANG released FY25 earnings data in late August, which included promising signs:
- Group revenue of $376.7 million, up 22.2%
- Underlying NPAT up 70% to $40.4 million
- Full-year fully-franked dividend of 1.5 cents per share (FY24: 1.2 cents)
Not all smooth sailing
Despite mostly positive results, statutory EBITDA was $41.7m, down from $43.5m in FY24.
Broker Bell Potter said in a report in August this was held back largely by issues in Chile.
While the plant in Chile was expanded, a large OEM order meant the unit was unable to meet demand, resulting in higher costs and expensive contract staff. This in turn put downward pressure on margins, saw a build-up of working capital, and lead to a reduction in group cash generation.
Upside still in tact
In Bell Potter's view, Austin Engineering (ANG) shares trade on a lower PE or EV/EBITDA multiple compared to similar mining service companies and manufacturers.
The broker has a buy recommendation and price target of $0.50.
From yesterday's closing price of $0.28 per share, this indicates an upside of 78.57% for this growth stock.
The broker sees upside for a few reasons.
Firstly, it notes its leadership position globally in customised truck bodies with strong IP, blue-chip customers, and recurring revenue from its large installed base.
Additionally, its Austin 2.0 strategy is driving growth and margin expansion (targeting 18% to 20%), while the stock trades at attractive valuations, offering upside from international growth, acquisitions in a fragmented industry, and potential (though unlikely) takeover interest from larger rivals.
Finally, the broker is optimistic on the appointment of a new CEO, Sy Van Dyk, who has put in place an action plan for Chile.
Importantly this is a company with good products that are in demand, and we expect to see profitability improve in FY27.
