Smaller ASX growth shares have the potential to deliver really good returns because of their ability to scale up from the current starting point.
I want to see businesses that can grow their revenue and profit margins, leading to excellent profit growth and, hopefully, good shareholder returns. Below are two I’m excited about.
Collins Foods Ltd (ASX: CKF)
Collins Foods operates KFC outlets in Australia, the Netherlands and Germany.
I’m optimistic about this company because KFC has a strong brand in the fast food space, and simply rolling out more locations in Australia and Europe could be a good driver of earnings. In the first half of FY24, it added eight new KFCs in the Netherlands and four KFC locations in Australia.
But, the ASX growth share is also growing same store sales (SSS) at a solid pace at the moment. In HY24, KFC Australia saw SSS growth of 6.6%, and KFC Europe’s SSS grew by 8.8%. Existing stores are performing strongly, and the overall network is growing at a solid pace.
As a bonus, it’s also responsible for Taco Bells in Australia, which is a useful growth avenue for the company, though it’s relatively small at this point.
The revenue rose 14.3%, underlying earnings before interest, tax, depreciation and amortisation (EBITDA) increased 16.7%, and underlying net profit after tax (NPAT) went up 28.7%.
The Collins Foods share price has dropped more than 20% since mid-January, so it looks much better value now. According to Commsec, the ASX growth share is now priced at under 13x FY26’s estimated earnings.
Airtasker Ltd (ASX: ART)
Airtasker offers a platform where people can advertise almost any task they need help with, which individuals and businesses can offer to do for a fee.
The ASX growth share claims to be the leading marketplace for local services in Australia and it’s now trying to do the same thing in the UK. It has signed a 5-year media-for-equity partnership with Channel 4 In the UK.
In the FY24 third quarter, Airtasker marketplace revenue rose 11.5% to $10.1 million, while UK posted tasks increased by 49.1% year over year.
To me, one of the most exciting things is that profit can soar from here, depending on how much it decides to re-invest for more growth. The business has a gross profit margin north of 90%, so new revenue is very profitable.
The FY24 third quarter saw free cash flow of $2.5 million, an improvement of $5.1 million year over year. I think the ASX growth share has a capital-light model which will enable it to make much stronger profit in the next two or three years.
The post 2 top ASX growth shares I’d buy today appeared first on The Motley Fool Australia.
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Motley Fool contributor Tristan Harrison has positions in Collins Foods. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Airtasker. The Motley Fool Australia has recommended Collins Foods. 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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