Top 10 ASX growth stocks to watch in January 2023

ASX growth stocks have taken 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 6.9%, while the RBA cash rate target has risen to 3.10%.

However, it’s worth noting these figures are some way off the far worse scenarios playing out across Europe, the US, and the UK.
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$470 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 fighting lower inflation than its counterparts in the UK, US 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. Domino’s Pizza Enterprises (ASX: DMP) 

This ASX-listed pizza operator is the largest pizza chain in Australia in terms of store numbers and sales. It’s also the world’s largest franchisee for the original American Domino’s Pizza brand which was founded in 1960 in Michigan. 

Morgans analysts consider Domino's to be a ‘high-quality operator with significant brand strength, first-class executive management and a global platform for long-term network expansion.’

Given that the headwinds faced by the operator are likely transitory, Morgans argues that ‘now is the best time to consider an investment in a quality business like DMP that is facing headwinds that will reverse in time.’

2. Allkem Ltd (ASX: AKE) 

Allkem is one of the world’s largest lithium miners, with its portfolio of projects including sites in Australia, Canada, Japan and Argentina. 

The lithium miner expects production to grow threefold by 2026, which could enable it to maintain a 10% share of global lithium production over the next decade. 

Allkem’s share price could see strong growth in future on the back of rising demand for lithium as the adoption of electric vehicles accelerates.

3. Altium Limited (ASX: ALU)

Altium shares are down circa 12% over the past year to $36. 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.
Accordingly, in FY22, the company saw revenue rise by 23% to US$220.8 million, while net profit after tax soared by 57% to US$55.5 million.

Goldman Sachs has a $42 price target on the ASX growth stock, citing ‘strong momentum from its flagship, desktop based software, Altium Designer, while has significant monetisation opportunities’.

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 its 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 plunged by 50% year-to-date to just above $73. Goldman Sachs nonetheless recently reiterated its buy rating with a $112.00 price target, highlighting the growth opportunity as self-employed leave traditional accountants through the recession.

5. GQG Partners (ASX: GQG)

GQG Partners shares comprised the largest ever Initial Public Offering launch on the ASX back in 2021, raising $1.2 billion on an initial $5.9 billion market cap. However, while the company launched at $2 a share, it’s now down to just $1.38.

But with over $86 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.

6. Judo Capital Holdings (ASX: JDO)

Judo Capital shares are down by 42% year-to-date to just $1.25 as Australia’s challenger bank is battered by the damaging recessionary environment.

However, its IPO in November last year 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.

7) Airtasker (ASX: ART)

Airtasker shares are down 61% year-to-date to $0.34, as a casualty of the wider recessionary environment. 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.

Encouragingly, there is substantial room for growth, as it saw a gross marketplace volume of just $189.6 million in FY22, up 23.8% on FY21.

And happily, Morgans analysts have an ‘add’ rating in place, with a $0.95 long term price target on the growth stock.

8) Webjet (ASX: WEB)

Up 15% year-to-date and attempting to close in on their their pre-pandemic value, Webjet shares are changing hands for circa $6 apiece. Of course, the online travel agent 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.

Goldman Sachs analysts therefore have a ‘buy’ rating for Webjet, with a price target of $6.90.

9) 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.

While the uranium spot price is off its March high, it still fetches a very respectable $6, with further rises likely as demand for nuclear energy grows.

10) Nitro Software (ASX: NTO)

Nitro Software shares experienced a volatile 2022, collapsing by more than 50% before recovering to end the year almost flat at $2.24 apiece.

The ASX growth stock provides e-signature tools and integrated PDF support to customers through its Nitro Productivity Suite. It has a total addressable market of US$34 billion, with e-signatures generally viewed as a growth area worldwide.

Investment firm Potentia recently made an offer of $1.58 per share to buyout the company, but management rejected the offer as ‘highly opportunistic’ given the market environment. Nitro saw revenue rise by 36% year-over-year to US$32.7 million in H1, has no debt, and could arguably be oversold.

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