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Top 10 ASX growth stocks to watch in September 2023

A rundown of the 10 best ASX growth stocks to consider next month. These shares have been picked for their speed of growth, though the volatile nature of growth shares means there is a qualitative element to their inclusion.

asx growth stocks Source: Bloomberg

ASX growth stocks took a hit in 2022. Financially, the twin ghouls of rising inflation and increasing interest rates are both making it much harder to achieve economic growth. Australian CPI inflation now stands at 5.4%, while the RBA cash rate target has risen to 4.1%.

Much of the financial stress can be attributed to global geopolitical events. The Ukraine War, rolling Chinese pandemic lockdowns, and now the expected global slowdown, are contributing to sizeable share price falls among many of even the best ASX growth stocks.

However, this could also make them excellent buying opportunities on the dip, despite the attached risk.

What is an ASX growth stock?

Growth stocks are shares in companies that are expected to grow much faster than either the average growth of a company within the wider market or within its specific sector.

Instead of paying out dividends, any profits generated are ploughed back into the business to help accelerate growth. Accordingly, investors are usually hoping to make a profit on capital gains in the short term, with dividend income a potential outcome once major growth has been established.

Some of the best growth stocks, especially those occupying a specialist niche, trade at a high price-to-earnings ratio. Therefore, would-be investors usually end up paying a premium in hope of future growth. This means that growth stocks can see rapid declines if the company underperforms, even in just one quarter.

Common traits of the most popular ASX growth stocks often include holding patents or technologies that grant the company a unique marketplace advantage. Therefore, many have a loyal customer base and disproportionately high market share.

One key misunderstanding is that all growth stocks are small caps that might have weaker financials or be confined to domestic business. While many are, larger companies can also qualify as growth stocks depending on how much market share remains realistically available.

As an extreme example, US$707 billion market titan Tesla is by all accounts still a growth stock, delivering less than one million of the 66.7 million automobiles sold in 2021.

High risk, high reward?

One of the best-known rules of investing is the risk-reward ratio, whereby investors balance an equilibrium that sees higher-risk companies deliver either negative capital growth or far better rewards than comes from value or income investing.

For context, penny stock investing is generally regarded as being very high risk, but with the potential for exceptional returns.

Conversely, income stock investing through blue chip companies for dividends is relatively low risk, but returns can take years to become meaningful.

ASX growth stocks take their place somewhere in the middle. Of course, many investors choose to invest in a diversified portfolio that includes multiple different growth stocks to account for the risk of an individual failure. And in this recessionary environment, it can make sense to buy the dip slowly through dollar-cost averaging to further mitigate the chances of losing capital.

But fundamentally, all investing comes with risk. For example, Tesla proponents believe the EV trailblazer could one day become the automobile production market leader; but any threat to this goal through competition or similar could see a sharp correction in the future. Conversely, if Tesla succeeds, its future market cap may make the current valuation look small.

Another common growth stock example is biotech companies, some of which have their valuations underpinned by one drug or treatment. If the drug fails in the trial stages, their share price can collapse, as happened to Synairgen, BridgeBio Pharma, Sensorion, and Rafael, alongside countless others.

What makes ASX growth stocks special right now?

Australian investors often have their pick of stocks from across the world, and many may look to the US for historically higher returns from companies enjoying a far larger marketplace than those found down under.

However, the recessionary environment could be changing the investing calculation. The Reserve Bank of Australia has imposed lower interest rates than its counterparts in the UK, US and EU, and in theory this makes growth in Australia easier to achieve.

This could be beneficial for ASX growth stocks, given the positive relationship between their performance and low-interest rates. Investors expect growth stocks’ share prices and financial performance to accelerate faster than the market average. To achieve this, they are usually reliant on cheap borrowing, fuelled by looser monetary policy.

And as a toxic combination of rocketing inflation and interest rate rises continue to hit the more popular equity markets harder than Australia’s, there could be a marked capital flight to the country’s comparatively looser financial policies.

Of course, no investment is risk-free, and there is no guarantee that ASX growth stocks will outperform their international peers. Many of the best ASX growth stocks have nevertheless suffered a poor 2022. But there is an undeniable advantage going forward into 2023.

Accordingly, here is a list of ten of the most promising ASX growth stocks for investors to consider.

Remember, past performance is not an indicator of future returns.

1. NextDC

Data centre operator NEXTDC was named by Deloitte as one of Australia’s fastest-growing tech companies in 2014, just two years before its listing on the ASX in 2016. 

The company has since expanded to establish nine data centres around Australia and retains the country’s only network of tier IV certified data centres. NextDC posted a strong performance for FY23, while strong growth in structural demand for cloud and colocation services could further boost revenues over the next three to five years. 

Up 46% year-to-date to AU$12.98, Goldman Sachs has a buy rating and an AU$13.30 target on the stock, given ‘the company has a compelling growth profile and a proven and profitable business model, noting it trades on a growth-adjusted discount vs. peers, which we view as unjustified.’

2. Volpara Health Technologies

Volpara is a biotech company which provides software for breast screening, and then analysing images taken to make a more accurate assessment of the patient’s risk compared to traditional methods. The software is used by 2,000 facilities globally with 5,600 mammography technicians making use of AI-powered tech every day.

In Q1 FY24, the healthcare business saw cash receipts rise by 27% to NZ$11 million — and it’s planning to become cash flow positive within FY24, a year ahead of previous guidance and a sign of truly stable growth. Further, the company spent FY23 operating on a whopping gross profit margin of 92.5%, and it expects this crucial measure only to improve with time.

Shares have climbed by 43% year-to-date to AU$0.78.

3. GQG Partners

GQG Partners shares comprised the largest ever Initial Public Offering launch on the ASX back in 2021, raising AU$1.2 billion on an initial AU$5.9 billion market cap. However, while the company launched at AU$2 a share, it fell to as low as AU$1.27 in March 2023, before bouncing back.

But with $88.7 billion of assets under management, Chairman and CIO Rajiv Jain argues that ‘the reasons people entrust us with their money is that at some point in the future, they expect to get more money back.’

The CIO has developed an investment approach coded ‘Forward Looking Value,’ which ignores traditional constraints in favour of investments that could prosper over longer timeframes.

GQG Partners shares have risen by 8.7% year-to-date to AU$1.50.

4. Frontier Digital Ventures

Frontier is on a mission to invest in developing online classifieds businesses in underdeveloped, emerging countries or regions. The Company invest in companies that operate in the digital automotive, property and general classifieds. This remains a high growth area as the less economically developed world continues to gain internet access.

In Q2 2023 results, the growth stock saw total annualised revenue come in at $76.5 million, and EBITDA at $6.7 million. Encouragingly, all three of its operating regions are now EBITDA and cash flow positive.

Shares have fallen by 63% over the past year as the company has been dented by rising rates and fears of a global recession — now may be time to buy the dip.

5. Webjet

Webjet is an online travel agent, and as such has been battered by pandemic era lockdowns followed by the rising cost-of-living crisis.

However, management expects the company will return to profitability in the near future. Further, the pandemic has forced it to pare down any excesses. While the process has been painful, it now leaves the ASX growth stock with margins in a healthier position for the recovery.

Morgans remains positive on Webjet, recently noting that ‘WEB has clearly come out of COVID with a materially lower cost base, consolidated systems and a large business in the US.’ It has an add rating on the ASX growth company and a target price of AU$8.97.

Shares have risen by 49% over the past year to AU$7.61.

6. Temple and Webster

Temple & Webster is an online furniture and homewares retailer that was found over a decade ago in Sydney. The company was named the Fastest Growing Internet Retailer in 2015 by the Deloitte Tech Fast 50. That same year, Temple and Webster launched its IPO on the ASX, raising $61 million. 

Despite the weaker economic environment, TPW could remain a winner due to its specialised focus on e-commerce and its large size in an industry that favours scale. The ASX company recently saw FY23 revenue drop by 7.2% year-over-year to AU$395.5 million, with net income down by 31% to AU$8.31 million.

However, CEO Mark Coulter enthused that this performance ‘demonstrates the resilience and flexibility of our business model...increasing scale will drive better financial returns, cost efficiencies and bigger budgets for marketing, people and technology, especially as we leverage our data and early adoption of AI...our strong cash generation and healthy balance sheet provides us with an opportunity to gain market share, potentially even more efficiently given current economic conditions.’

7. Airtasker

Airtasker shares have fallen by a whopping 50% over the past year to AU$0.19, as a casualty of the wider recessionary environment. However, Australia’s market leader for online marketplace local services, and answer to Freelancer, Upwork, and Fiverr, has a vast $600 billion total addressable market across Australia, the US, and UK.

In FY22 results, revenue rose by 18.4% on the prior year to $31.5 million, while international GMV increased by 120.5% to $9.5m ARR in May-22. Further, the company held $31.8 million in cash and equity receivables on its balance sheet.

Co-founder and CEO Tim Fung noted ‘with $31.8m of cash and equity receivables and a business model which could accelerate in an inflationary environment - we’re looking forward to FY23.’

8. Xero Limited

New Zealand-based tech company Xero develops accounting software for small businesses that leverages online and mobile technologies to improve convenience and functionality.

The company provides services to more than 3.7 million subscribers with an online platform for sending invoices, performing bank reconciliation, paying bills, claiming expenses, accepting payments, tracking projects, and doing payroll. 

Xero is also being boosted by the decisive action of new CEO Sukhinder Singh Cassidy who has axed 800 jobs to streamline profitability.

Citi and Goldman Sachs are both bullish for further growth; the former arguing that the growth share will ‘deliver 3-year EBITDA CAGR >35%,’ and the latter advising that Xero’s total addressable market could be as high as 100 million subscribers. Both have a buy rating; Citi has a price target of $120 and Goldman $130.

For context, Xero shares have risen by 63% year-to-date to $114.

9. PeopleIn

PeopleIn bills itself as the largest ASX-listed talent solutions company in Australia and New Zealand. The company claims to help more than 10,000 jobseekers find work each week across the three verticals of healthcare & community, professional services and industrial & specialist services. 

PeopleIn’s share price has plunged circa 33% over the past year to AU$2.31. However, this dip could be an excellent entry point for investors with a reasonable risk appetite.

10. Lovisa

Lovisa is becoming a popular ASX growth share as it operates in the affordable jewellery space. It has 163 shops in Australia — its largest market — but during HY23, the company opened up 37 shops in the US bringing the total stateside to 155. At present, it has 715 shops open worldwide, and growth isn’t slowing down.

Rarely for a growth share, it has consistently paid out a growing dividend since 2020. In its 2022 annual report, the company reported that revenue had shot up by 59.3% to $458.7 million, with NPAT up by 116.3% to $59.9 million.

Lovisa shares are up by 14% over the past year.

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