2 ASX 200 shares that could be top buys for growth

I think it could be a mistake to think that the largest S&P/ASX 200 Index (ASX: XJO) growth shares have finished expanding.

For starters, there are reasons why those businesses have been as successful as they have – their product/service attracted customers and the economic moat has kept them ahead of competitors. I think it’s likely these winning ASX 200 shares can continue to perform, which is why I’m a big fan of the below names.

Xero Ltd (ASX: XRO)

Xero is one of the world’s leading cloud accounting providers for small and medium businesses.

Its software is very popular with subscribers thanks to its easy-to-understand layout, efficiency tools and digital capabilities for reporting figures to the government.

The ASX 200 share has a subscriber retention rate of around 99% each year, which is a great sign of the value customers get and allows the business to implement price increases over time without losing many subscribers.

If its revenue and cash flow continue growing at a strong double-digit pace, the company’s valuation (which has fallen substantially in recent times – down 40% in six months) could be very attractive.

The fact its gross profit margin remains close to 90% is a very good sign for further profit growth as it adds more subscribers.

TechnologyOne Ltd (ASX: TNE)

This is another ASX 200 share with an exceptional record and plans to become much larger. It provides enterprise resource planning (ERP) software in multiple countries.

By the end of the decade, the business is aiming for $1 billion of annualised recurring revenue (ARR), which would be close to a doubling of that figure over the next five years.

That growth is likely to be driven by two key elements.

First, it’s targeting the UK which has similar sorts of potential customers as Australia: local councils, companies, governments, universities and so on. It recently won two important London borough councils as subscribers.

Another long-term driver of revenue could be the company’s high net revenue retention (NRR). This explains how much of last year’s revenue it retained from the existing client base. It’s hitting a NRR rate of 115%, meaning 15% more revenue than last year.

It’s achieving such a high growth rate because the ASX 200 share is successfully improving the software and selling more modules. Growing revenue at 15% per year means it would double in five years.

The business is also expecting its profit before tax (PBT) to climb towards 35% in the coming years, making it more likely that its bottom line can continue its ascent to much larger figures in the next five years.

According to the forecast on CMC Markets, the TechnologyOne share price is valued at 39x FY28’s estimated earnings.

The post 2 ASX 200 shares that could be top buys for growth appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Technology One. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Technology One and Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool Australia has recommended Technology One. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.