ASX growth shares that can significantly grow their earnings from now into the future could be big investment opportunities.
I love the look of a business that’s growing quickly and re-investing for more success. If they have a large addressable market, then there’s a large growth runway.
In five years’ time, I believe the below three businesses could become much, much larger.
Lovisa Holdings Ltd (ASX: LOV)
Lovisa is an ASX retail share that sells affordable jewellery in many countries around the world.
In Australia, a country with less than 30 million people, it had 163 stores at the end of the FY23 first half. In almost all the countries that it’s currently in, I think there’s room for a larger store network. For example, at the end of HY23, in the UK it had 42 stores, in Italy it had four stores, in the USA it had 155 stores, in Canada it had one store, in Mexico it had two stores and in South America, it had one store.
I think it can easily grow its store network to over 2,000 stores in the next several years, particularly if it expands into India and mainland China. Lovisa has already started opening stores in Hong Kong.
In the FY23 half-year result the ASX growth share saw net profit after tax (NPAT) growth of 31.9%. An expanding global store network could enable a much bigger profit and dividend. It’s quite cheap to expand the store network with how cheap the actual products are.
Once it reaches 1,500 stores, I think its operating leverage will really be shining through.
Volpara Health Technologies Ltd (ASX: VHT)
Volpara is a fast-growing ASX healthcare share that provides software that helps identify breast cancer, analyse a patient’s risk and suggest follow-up actions.
It’s growing at a very fast pace, in FY23 it achieved total revenue growth of 34% to NZ$35 million, while the gross profit increased 36%. Operating expenses only grew by 7% year over year, demonstrating the operating leverage of its operations, and it could suggest that profit margins are about to soar if it keeps expense growth low.
The ASX growth share is still quite a small business, but I think it’s going to become much larger if it can be successful at growing its average revenue per user (ARPU) in the US and expanding geographically in Europe. It seems to be doing well in Australia.
Volpara’s increasing usage of analytics and AI could help the ASX share provide an even stronger service, worthy of higher subscription fees from subscribers.
The fact that it is operating cash flow breakeven is a good sign in my eyes that it can invest most of the new revenue heavily without hurting the balance sheet.
Temple & Webster Group Ltd (ASX: TPW)
This ASX share is another one where I’m expecting significant profit margin improvement.
The retailer of furniture and homewares could see a lot of growth in e-commerce adoption. In 2021, online penetration in Australia for homewares and furniture was between 15% to 17%, while it was between 28% to 30% in the UK. This implies that just to reach the previous UK market share level, there’s significant growth potential for the ASX growth share.
In FY22, the company saw an earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 3.8%. In the longer term, it’s aiming for an EBITDA margin of over 15%. I think this implies a lot of profit growth considering the revenue is likely to increase as well.
Temple & Webster said on 17 May 2023 that revenue in the prior four weeks was up 10% compared to the prior corresponding period.
The company has noted that its conversion rate with customers has improved when they use the AI interior design process. There has also been an increase in products being added to carts, conversion and revenue thanks to ChatGPT powering all pre-sale product enquiry live chats, as well as enhancing product descriptions across the ASX share’s 200,000 products for sale.
With technology’s help, I think the company’s profit can soar over the next few years (and beyond).
