There are plenty of things to look out for with top ASX growth shares.
What are the profit margins going to look like in a few years? How good are the management? Is the balance sheet strong enough? How good are the competition? I think these are all important factors. Another thing you should think about at the moment: how will the coronavirus affect the business?
But I believe there’s one key factor you shouldn’t forget about with top ASX growth shares:
Does the top ASX growth share offer international growth?
I think that international growth is very important for generating excellent long-term returns.
At some point a business will stop growing. How long is that growth runway? Australia is a wealthy country that can support sizeable businesses, particularly if they’re the market leader in that industry like Commonwealth Bank of Australia (ASX: CBA), Woolworths Group Ltd (ASX: WOW) or InvoCare Limited (ASX: IVC).
But that top ASX growth share will hit a ceiling if it’s only servicing a region/country with 25 million people. If you are able to sell your product or service to extra countries then the company will have much more growth potential. New Zealand is usually the natural first choice because it’s a similar market to Australia. Plenty of shares on the ASX have done this.
What are some examples?
Look at how much growth A2 Milk Company Ltd (ASX: A2M) has unlocked because of Asia and the USA. Bubs Australia Ltd (ASX: BUB) is another that I’ve got my eyes on for international growth. Pushpay Holdings Ltd (ASX: PPH) is winning in the huge US market.
Tech shares like Xero Limited (ASX: XRO), Afterpay Ltd (ASX: APT) and WiseTech Global Ltd (ASX: WTC) are partially valued so highly because they are expanding globally.
But beware. Sometimes international growth can be a poisoned chalice. Not every top ASX growth share will be successful at expanding overseas. Look what happened when Wesfarmers Ltd (ASX: WES) tried to take Bunnings to the UK.
I’m very interested in Bubs and Pushpay because of the large markets they’re trying to win in.
There are some other excellent other growth share ideas out there alongside Xero.
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More reading
- 3 ASX shares Warren Buffett couldn’t ignore today
- Should you ever buy ASX shares at an all-time high?
- Have $4,000? Invest in these 4 ASX shares right now
- Is the A2 Milk Company share price in the buy zone?
- Are these exciting small cap ASX tech shares the next Afterpay?
Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of BUBS AUST FPO and Xero. The Motley Fool Australia owns shares of and has recommended PUSHPAY FPO NZX. The Motley Fool Australia owns shares of A2 Milk, AFTERPAY T FPO, Wesfarmers Limited, and WiseTech Global. The Motley Fool Australia has recommended BUBS AUST FPO and InvoCare Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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