The ASX growth shares I’m going to tell you about in this article are down significantly from their former highs. But, with their revenue growing exceptionally strongly, I’m optimistic about their outlook to deliver market-beating returns.
I really like the look of businesses that have impressive gross profit margins because that usually means that revenue growth will translate into appealing gross profit growth. This can then be utilised for more growth expenditure and/or enabling stronger profit generation.
With how well things are going for the two names below, I’d rate them as strong contenders to perform nicely over the next 12 months and beyond.
Siteminder Ltd (ASX: SDR)
Siteminder describes itself as the “world’s leading open hotel commerce platform” where it has earned “the trust of tens of thousands of hotels, across 150 countries to sell, market, manage, and grow their business[es]”.
Siteminder understandably took a hit during the COVID-19 pandemic but now that travel conditions have returned to normal, things are going very well for the business. In the three months to 31 March 2023, revenue increased 28.7% to $37.3 million while annualised recurring revenue (ARR) went up 28.5% year over year to $150.3 million.
One of the most pleasing elements of the ASX growth share’s latest update was that not only is revenue rising strongly, but net subscriber additions were faster in the FY23 third quarter than in FY23’s first and second quarters. This could suggest revenue will continue to grow quickly as these new users come on board.
Siteminder is still reporting cash outflows but that’s rapidly improving and I think when it reaches breakeven status, it will give investors a lot more confidence. The recent improvement in its cash outflow reflects the scalability of the business and how it has been cutting costs, though it’s still investing for growth.
It had $56.9 million of cash at the end of the first quarter, meaning it’s well funded to reach breakeven.
The ASX growth share expects to be free cash flow neutral by the end of FY24 on a quarterly basis thanks to revenue growth and “cost initiatives”. It also looks good value as its share price is down around 60% from the end of 2021.
Volpara Health Technologies Ltd (ASX: VHT)
Volpara is one of the most exciting ASX healthcare shares in my opinion. It provides breast screening software to help patients and healthcare providers better analyse the images and understand the risks of cancer developing.
The Volpara share price is down around 45% since October 2021, and I think it’s much better value now, considering it has grown revenue strongly since then.
This business reported a gross profit margin of 92.5% in the FY23 result, meaning nearly all of its new revenue is a boost for gross profit.
The ASX growth share said that in FY23, its net revenue retention rate was 107%. This indicates that not only did it hang onto its existing revenue from customers, but it added an extra 7% revenue from those customers.
Volpara offers a number of different software modules, with analytics, patient hub, and risk pathways seeing revenue growth of 30%, 33%, and 49% respectively in the last financial year. FY23 total revenue went up 34% to NZ$35 million.
Its expenses only grew 1% in constant currency terms, suggesting the business is demonstrating good scalability and has good control over costs. It’s starting to achieve breakeven on a cash flow basis, while FY24 could see positive earnings before interest, tax, depreciation and amortisation (EBITDA).
I think the business can keep growing its average revenue per user (ARPU). It could also achieve pleasing success in Europe, with most of its revenue currently coming from the US. Finally, it has a small but promising division focused on lung cancer which could unlock further earnings.
