I'm steadily building my wealth towards retirement and I'm backing some ASX stocks to help me build a significant nest egg.
In my view, the companies that could deliver the best returns are the ones that could deliver the most earnings growth or deliver growth for the longest. Compounding is a very powerful financial force when given time to play out.
If a business made $100 million of revenue last year and grows its revenue by 10%, it becomes $110 million, a rise of $10 million. Another year of 10% revenue growth becomes $121 million, a rise of $11 million. Another year of 10% revenue growth becomes $133.1 million, a rise of $12.1 million.
You can see how as time goes on, compounding makes the dollar amount grow at a faster pace, even when it's growing in the same pace in percentage terms.
When I was thinking recently where to invest $5,000, I was attracted to growth plays that have plenty of earnings compounding ahead of them. With that in mind, I decided to invest around $5,000 across three ASX growth stock names after their share prices dipped, which I'll run through below.
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Pro Medicus Ltd (ASX: PME)
Pro Medicus is a leading provider of medical imaging software and services to hospitals, imaging centres, and healthcare groups globally, with a particular focus on the US.
Its offering includes a suite of radiology imaging solutions, picture archiving and communication systems (PACS), artificial intelligence (AI), and e-health solutions.
When a company is revolutionising an industry, I think one of the key signs of success of the business is how many customers are signing up and how many are staying when their contracts come up for renewal.
In the FY26 result, which was reported in August, the business noted that it signed 10 new contracts worth a minimum of A$407 million during the financial year, including a 10-year $170 million contract with UC Health Colorado.
During FY26, it renewed six out of six contracts worth A$141 million on five-year terms, with those contracts seeing an increased fee per transaction, which is a great source of organic growth.
Pro Medicus continues to announce new contracts in FY27. On 21 October 2026, it revealed a A$43 million contract with Virtua Health, which included its relatively new cardiology offering – another avenue for the business to grow revenue and earnings.
I've outlined how the company is growing revenue significantly, and the outlook for growth remains very positive. Its profit growth potential looks even more exciting.
In FY26, its EBIT (operating profit) margin improved by 90 basis points to 74.9%. In other words, almost three-quarters of revenue turned into usable operating profit. The scale of the improvement makes me believe the EBIT margin could rise again in FY27.
When profit margins are rising, it means profit grows faster than revenue. Investors usually value a business based on its profit, plus it's profit that pays for the dividends.
Ultimately, profit drives shareholder returns, and I'm expecting a lot of profit growth in the coming years from further market share gains, pleasing contract renewals, and rising margins.
L1 Group Ltd (ASX: L1G)
L1 Group is a fund manager that offers clients a number of investment strategies across ASX shares, international shares, gold shares, UK property, and more.
Many of its main investment funds have an impressive track record, such as the L1 Long Short Fund Ltd (ASX: LSF), where its portfolio has delivered an average net return per year of 19.4%. The growth in the net assets of the funds it manages is helping increase its management fees.
On 14 October 2026, it reported its quarterly funds under management (FUM) update as at 30 September 2026. That update showed its FUM had risen to $19.3 billion, up 9.5% in 2026 to date thanks to a mix of investment performance and net inflows.
The fund manager is open to carrying out capital raisings and initial public offerings (IPOs) of investment funds, helping bring more client money under its wings. For example, in September 2026, the listed investment company (LIC) L1 Gold Fund Ltd (ASX: LGF) enacted a $375 million capital raising.
With its main investment philosophy of being willing to invest in industries that aren't popular (and sometimes shorting companies that seem significantly overvalued), it's able to produce returns in all economic climates.
I also think it could launch new investment products in the coming years (such as a small-cap fund), and start new partnerships and other initiatives that can help boost its FUM.
In my view, this ASX stock offers something quite different to many other fund managers, and is one worth buying.
Propel Funeral Partners Ltd (ASX: PFP)
Propel is the third ASX stock I want to highlight. It's the second-largest funeral operator in Australia and currently operates from 213 locations, including 42 cremation facilities and nine cemeteries. I expect to be a shareholder in this business for the next 20 years because of the growth tailwind it's exposed to.
Based on Australian Bureau of Statistics (ABS) figures, the number of Australian deaths is expected to grow at a compound annual growth rate (CAGR) of 2.8% between 2026 and 2035, and then 2.3% between 2036 and 2045.
In other words, the industry is expected to grow for the next two decades, though it's not guaranteed to see growth every single year.
Propel can accelerate its growth and scale benefits by continuing its acquisition streak, leading to growth in its geographic footprint. The funeral sector is a very fragmented market.
Additionally, the average revenue per funeral is steadily growing over the long term, which is a low-but-steady boost for organic revenue growth.
Its trailing dividend yield, based on the FY26 payout of 14.4 cents per share, is a dividend yield of 4.9% excluding franking credits and 7.1% including franking credits. The dividend represents a solid return before we even get to the potential of long-term capital gains.
Overall, I'm excited about the potential of these businesses, and I expect I'll be a shareholder for years to come.
