Buying the right ASX growth shares at the right price can lead to excellent results for our portfolio and great compounding returns.
It’s not easy to identify businesses that are going to double in value. The shorter timeframe you expect a 100% return, the less likely it is to happen.
It is very likely that there will be some volatility along the way. For example, on 6 February 2023, I wrote that I thought AGL Energy Ltd (ASX: AGL) shares could double an investor’s money in four years. A week later it was down 10%! But, since the article’s publication it’s up close to 60% thankfully.
In this article I’m going to write about two ASX growth shares that are growing their revenue at a double-digit rate that I believe could double in value over the next four or five years, which could mean they materially outperform the S&P/ASX 200 Index (ASX: XJO).
Johns Lyng Group Ltd (ASX: JLG)
Johns Lyng is an ASX 200 growth share that specialises in building and restoration services for properties that have been damaged in an insurable event, such as a storm, flooding and so on. Its two key markets are the US and Australia.
I think there’s a strong tailwind behind this business sadly, with the number of damaging and expensive storms expected to keep increasing.
In FY23, the company expects its revenue, excluding commercial construction, to grow by 47.7% to $1.19 billion and forecasts that normalised earnings before interest, tax, depreciation and amortisation (EBITDA) (excluding commercial construction) could rise by 56% to $133.2 million.
Those numbers demonstrate strong growth and increasing profit margins. It’s expecting strong demand to “continue into FY24 and beyond.”
Its growth could continue as it makes bolt-on acquisitions. It recently acquired two businesses in the ‘essential home services’ space which provide fire, electrical and gas compliance, testing and maintenance. These are “significant cross-selling opportunities” with the ASX growth share’s existing businesses according to management. Acquiring body corporate/strata managers around the country also makes a lot of sense for long-term earnings growth.
When combining all of the above together, I think this will lead to the Johns Lyng share price doubling thanks to the long-term earnings growth.
Temple & Webster Group Ltd (ASX: TPW)
The short-term is uncertain for ASX retail shares because of inflation and higher interest rates. But I think the long-term looks very promising for Temple & Webster.
In FY22 it achieved revenue growth of 31% and in the four weeks to 15 May 2023, it achieved revenue growth of 10% after completing cycling against COVID-boosted e-commerce sales.
Temple & Webster runs a drop-shopping model where a large proportion of products sold are sent directly to customers by suppliers, reducing the need for the ASX growth share to hold inventory (and reducing its capital needs), as well as enabling a larger product range and stronger financials.
I believe that more people are going to buy more items online over time as a greater level of the population is digital-savvy and the younger generations enter their prime-spending years.
The company is using AI to provide customers with a digital interior design process (which helps with the customer conversion rate). Temple & Webster is also now using ChatGPT to power its pre-sale product enquiry live chats which is leading to higher customer satisfaction, more customers adding products to their carts and an increase in conversion rate.
As the ASX growth share scales, I think its profitability margins can significantly improve, which should excite investors and this could drive the Temple & Webster share price higher in the coming years.
