Top 10 ASX growth stocks to watch in July 2023

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 7%, while the RBA cash rate target has risen to 4.10%.

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$619 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 is has been fighting lower inflation than its counterparts in the UK and EU, and in theory this could keep interest rates proportionately lower for longer.

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.

Here is a list of ten of the most promising ASX growth stocks for investors to consider:

1. Airtasker (ASX: ART)

Airtasker shares have fallen by a whopping 42% over the past year to AU$0.18, 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 the first six months of FY23, Airtasker saw revenues jump by 57% to $21.8 million, delivering a 58% increase in gross profits to $20.3 million. It also saw gross marketplace volumes also rose by 58% to $131.7 million. However, shares remain under pressure as EBITDA soared from a loss of $3.7 million in the prior period to a loss of $5.1 million for this half.

July could be the time to buy the dip.

2. Temple and Webster (ASX: TPW) 

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 first-half profits slump by almost 50% to $3.87 million seeing shares drop sharply. However, this may represent an entry opportunity.

Goldman Sachs has a ‘buy’ rating and a $6.10 target on the stock, arguing TPW is a ‘long term structural growth opportunity driven by increasing online penetration and consolidation of online market share. We think TPW is best placed to be a winner in a category that favours scale players, requires a specialist approach to e-commerce and logistics, and has higher barriers to entry vs other categories.’

3. Altium Limited (ASX: ALU)

Altium shares are up circa 45% over the past year to $37. The software company provides PC-based electronics design software to engineers who design printed circuit boards (PCBs).

Management is so confident of its growth prospects that Altium rejected a $38.50 per share buyout bid from Autodesk in June 2021 as ‘significantly undervalued.’ And it may have a point, as it counts Tesla, Microsoft, Amazon, Alphabet, Apple, SpaceX, and even NASA among its clients.

Recent earnings saw ALU report a 17% increase in revenue to US$119.5 million and a 30% jump in net profit after tax to US$29.6 million. Bell Potter analysts have a hold rating and $42.50 price target on the ASX stock — while Goldman has a neutral rating and a $42 price target.

4. Xero Limited (ASX: XRO) 

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 3.5 million subscribers with an online platform for sending invoices, performing bank reconciliation, paying bills, claiming expenses, accepting payments, tracking projects, and doing payroll. 

Xero’s share price has now recovered by 62% year-to-date to AU$114. Earlier this year during the company's share price slump, Morgans had an add rating with an AU$97 target on the ASX growth stock, noting that rising rates has left a ‘rare opportunity to buy a high quality global growth company at a discount to the life time value of its current customer base.’

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

5. Breville Group (ASX: BRG)

Sydney-based Breville Group is a multinational manufacturer of home appliances that bills itself as an iconic global brand. 

The company sells its kitchen products to over 70 countries internationally, with its marquee brands including Breville, Kambrook and Ronson. It’s also added Lelit and Baratza to its brand portfolio in an effort to comer the premium coffee segment.

In first half FY23 results, the company saw EBITDA rise by 13.1% compared to the same half in the last financial year to $141.9 million. Meanwhile, net profit after tax rose by 1.3% and gross margin increased by one percentage point to 35.1%. These are strong numbers given the inflationary environment.

Breville’s share price could perform well going ahead on the back of a growth strategy focused on the coffee market and new market entry. Goldman Sachs analysts say this growth strategy could drive a compound annual increase in EBITDA of 7% between FY23 and FY25.

6. PeopleIn (ASX:PPE)

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 dropped circa 19% over the past year to AU$2.19. However, this dip could be an excellent entry point for investors with a reasonable risk appetite.

7. NextDC (ASX: NXT) 

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 43% year-to-date to AU$12.72, 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.’

8. GQG Partners (ASX: GQG)

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’s now down to just AU$1.48.

But with close to $89 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.

9. Judo Capital Holdings (ASX: JDO)

Judo Capital shares are down by 15% over the past year to AU$1.19 as Australia’s challenger bank is battered by the damaging recessionary environment.

However, its IPO in November 2021 made it the first bank to list publicly in Australia since Macquarie in the 1990s, and it fills a niche position as ‘Australia’s only challenger bank purpose-built for small and medium businesses.’

Rising interest rates could eventually create significant profitability, though concerns over a severe recession could outweigh the hoped-for benefits.

10. NextGen Energy (ASX: NXG)

NextGen Energy shares could be a decent addition to an investor’s growth stock portfolio. The uranium miner, which is listed on multiple stock exchanges worldwide, could soon benefit from the rising desire for energy security, green solutions, and the on-off political chaos in major uranium-producing country Kazakhstan.

In addition, the Ukraine war has changed the political winds. Japan, once the most fervently anti-nuclear nation, has now u turned as security of supply tops the agenda.

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