High-growth ASX shares can be excellent investments if we buy high-quality names at a good price.
Very few businesses are trading cheaply these days, but there are some names that have fallen in value over the last few weeks/months. These are the sorts of names that could be opportunities.
Compounding is a very powerful force and businesses that are growing the fastest can grow their earnings the most over the long-term, justifying higher share prices.
The two businesses I'll highlight are two of the best on the ASX, in my view, but trade at cheaper prices.
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TechnologyOne Ltd (ASX: TNE)
Since June, the TechnologyOne share price has fallen around 15%, despite the company reaching its strongest position ever, in my view. We can see the valuation decline on the chart below.
TechnologyOne provides enterprise resource planning (ERP) software for subscribers like companies, government agencies, local councils and universities. In other words, it provides software that helps them carry out their operations, making it vital.
The company continues to win new customers, helping drive its annual recurring revenue (ARR), such as the Islington London Borough Council, its first area of London, as well as TasTAFE.
In FY25, the ASX growth share's total ARR increased 21% to $511.1 million and UK ARR soared 50% to $43.1 million.
Considering the UK has similar sorts of entities as Australia, including universities and councils, there are good prospects for the business to repeat its success in the country.
The business is expecting its profit margins to increase in the coming years, as revenue rises faster than expenditure thanks to its software nature.
According to the forecast on Commsec, the TechnologyOne share price is valued at 56x FY27's estimated earnings.
REA Group Ltd (ASX: REA)
The REA Group share price is down around 20% from August, as the chart below shows.
If someone wanted to profit from the Australian property sector – this is one of the best ways to go about it. It owns a number of property-related businesses such as realestate.com.au, realcommercial.com.au, flatmates.com.au, Mortgage Choice, PropTrack, property.com.au, Campaign Agent and more. It has a strategic investment in Simpology, Arealtyics and Athena Home Loans.
Realestate.com.au plays an important part in properties being bought and sold (and rented). It receives significantly more potential buyers looking at the portal compared to its nearest competitor, giving it strong pricing power with property sellers.
A strong market position allows the ASX growth share to deliver higher prices and achieve stronger profit margins.
FY25 saw the business grow revenue by 15% to $1.67 billion and net profit surged 23% to $564 million.
With more properties being built every year, I think REA Group's addressable market is increasing. Plus, the potential of REA India could add to its overall earnings in the coming years.
According to the forecasts on Commsec, the REA Group share price is valued at 29x FY28's estimated earnings.
