I believe ASX growth shares have excellent potential to deliver long-term returns because of their ability to compound earnings at a strong rate.
I'm going to highlight three investments I expect big things from over the next three to five years, which I'd happily invest $20,000 in.
Below are two of the ASX's leading growth companies and one compelling exchange-traded fund (ETF).
Image source: Getty Images
Temple & Webster Group Ltd (ASX: TPW)
Temple & Webster is one of the leading online retailers in Australia, selling hundreds of thousands of homewares and furniture through its website. A significant portion of the items are shipped straight from the supplier, reducing the need for the company to hold inventory and warehouse space – it creates a capital-light model for the business.
The company is growing rapidly and this is steadily giving it stronger scale benefits. Plus, it's deploying technology and AI throughout its business, which is helping with costs and boosting customer conversion.
During this period of weaker consumer conditions, the ASX growth share is focused on increasing profitability. It expects to approximately double its operating profit (EBITDA) in FY27, even if trading conditions are challenging.
Over the longer-term, I expect rising e-commerce adoption in Australia can help the company increase its market share further. I'm also hopeful that the home improvement segment can continue growing in size and become a significant contributor in the coming years – home improvement revenue rose 46% in HY26 off a small base.
According to the projections on Commsec, the ASX growth share could grow its earnings per share (EPS) by around 160% between FY26 and FY28, with it trading at 32x FY28's estimated earnings at the time of writing.
Global X S&P World Ex Australia GARP ETF (ASX: GARP)
This is an ETF focused on finding quality growing businesses at a reasonable price, with solid financial strength. There are 250 international businesses in this portfolio that demonstrate 'GARP' characteristics – it offers good diversification across countries and sectors.
There are three boxes that stocks need to pick. First, they must demonstrate growth with both sales and earnings. Second, they should be good value on a price to earnings (P/E) ratio basis. Third, they must be quality in terms of low debt levels a high return on equity (ROE).
This high-quality fund has an annual management cost of just 0.3%. Impressively, it has delivered an average return per year of 17.5% since inception in September 2024. Of course, past performance is not a guarantee of future performance.
L1 Group Ltd (ASX: L1G)
Plenty of funds managers go through ups and downs, which can give investors buying opportunities. L1 is a highly respected funds management business with a compelling future with a number of high-performing funds.
Some of its funds like L1 Global Long Short Fund Ltd (ASX: GLS) have a strong track record for delivering returns, which is a very powerful tailwind for growth of funds under management (FUM) and management fees. The great returns also help attract more FUM.
The ASX growth share has highlighted a number of other factors that could help earnings rise in the coming years such as joint ventures, acquiring other fund managers and launching more strategies.
Additionally, the business is working on unlocking synergies from the Platinum acquisition.
According to the projection on Commsec, the ASX growth share is valued at 23x FY27's estimated earnings and is forecast to grow earnings per share (EPS) by 25.5% in FY27.
