Investing in great ASX growth shares can make you a fortune over the next 10 years. Starting with $3,000 can compound into a much larger number if you invest well.

Take A2 Milk Company Ltd (ASX: A2M) for example. At the end of 2015 the A2 Milk share price was around $1. Today the share price is $17. That would have turned $1,000 into $17,000. I think A2 Milk still has plenty of growth left, but it’s now a pretty large business. Good growth gets harder as businesses increase in size.

Here are two ASX shares that I think could potentially make very good returns over the next decade:

Share 1: Bubs Australia Ltd (ASX: BUB)

Bubs is an ASX growth share that’s following in the footsteps of A2 Milk. It’s an infant formula company that specialises in goat milk products.

The company has successfully expanded its domestic distribution network. Bubs is now sold at Woolworths Group Ltd (ASX: WOW), Coles Group Limited (ASX: COL) and Baby Bunting Group Ltd (ASX: BBN) stores. It’s also sold on important Asian ecommerce sites. I like how Bubs has secured its supply chain with acquisitions, which includes the largest goat herd in Australia.

I think that the growth Bubs is delivering is excellent. In the FY20 third quarter to 31 March 2020, Bubs achieved record quarterly revenue of $19.7 million, up 67% on the prior corresponding period and up 36% on the previous quarter.

In the last quarter the ASX share’s infant formula range saw a 137% rise in revenue year on year and a 33% rise quarter on quarter. Chinese revenue more than doubled compared to the prior corresponding period. ‘Other markets’ revenue rose by almost 20 times.

The positive quarterly operating cashflow of $2.3 million was a pleasing surprise.

Rising profit margins and exciting international growth are key for this ASX share making a fortune for your portfolio.

Share 2: Pushpay Holdings Ltd (ASX: PPH)

Pushpay is another ASX growth share that has a very exciting future. The electronic donation business is targeting a US$1 billion annual revenue opportunity from the large and medium US church sector.

In its recent FY20 result the ASX growth share achieved US$129.8 million of revenue. This represented growth of 32%. Excluding the Church Community Builder acquisition, the Pushpay operating revenue rose by 28% to US$123.1 million.

The difficult circumstances caused by COVID-19 has led to more electronic donations and Pushpay management expect this trend to continue in FY21. Earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) is expected to come between US$48 million to US$52 million – this would be approximately double FY20’s figure. I think that would be impressive growth. 

I believe the growing profit margins are very attractive. The ASX share’s gross margin rose from 60% to 65% in FY20. Total operating expenses only increased by 5% in FY20, compared to the 33% increase in operating revenue. This slow expense growth saw the ratio of total operating expenses to operating revenue improve by 13 percentage points from 65% to 52%.

The company is becoming increasingly profitable as it scales. Economies of scale is a key feature for some ASX growth shares generating big returns for investors.

Pushpay is now comfortably cashflow positive. In FY20 its operating cashflow improved by US$26.3 million to US$23.5 million. FY19 saw negative operating cashflow of US$2.8 million. Becoming cashflow positive is an important step for a growth share.

If Pushpay can be successful in another not-for-profit sector, outside of US churches, then it could open another exciting growth runway.

Foolish takeaway

I think both of these ASX growth shares have exciting prospects over the next decade. I’d probably go for software-based Pushpay over Bubs today, but I’d love to have both of them in my portfolio.

More reading

• 3 five-star ASX shares I would buy today
• Got $20,000? These are the ASX shares I’d buy during COVID-19
• 3 fantastic ASX shares to buy and hold to make you wealthy
• Have $1,000? You should pick one of these 8 ASX shares
• How the A2 Milk and Bubs share prices have performed during the pandemic

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 PUSHPAY FPO NZX. The Motley Fool Australia owns shares of COLESGROUP DEF SET. The Motley Fool Australia has recommended BUBS AUST FPO and PUSHPAY FPO NZX. 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.

The post $3,000 invested in these 2 shares could make you a fortune over the next 10 years appeared first on Motley Fool Australia.

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Is the Australia and New Zealand Banking Group (ASX: ANZ) share price a buy?

ANZ’s share price has been on a bit of a rollercoaster in recent months. During the first COVID-19 share market crash it fell by 48% to $14.10 in March. It then rose 49% to peak at $21 last week. Interestingly, the ANZ share price has fallen 12% from that post-crash high last week.

ASX investors may have pushed the ANZ share price a little too far. There is certainly a lot of positive news around. Australia’s coronavirus, infection numbers are very low. The cost of jobkeeper was overestimated by $60 billion, which means the economy didn’t need as much support as first feared.

ASX banks like ANZ are an important part of the Australian economy. A good economy is important for the performance of the banks. The other large ASX banks of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd (ASX: NAB) are also key parts of keeping Australia’s economic cogs turning.

ANZ recently announced its initial estimation of the expected effects on COVID-19 on its profit. The ANZ share price has fallen so hard because of the fears about the coronavirus impacts.

In the recent ANZ half-year result the major ASX bank announced that statutory profit was down 51% compared to the prior corresponding period. The decline was driven by credit impairment charges of $1.674 billion, which included increased credit reserves for COVID-19 impacts of $1.031 billion. In that same result ANZ reported that its (continuing) cash profit dropped by 60% to $1.4 billion.

The large decline in profit and uncertainty caused by COVID-19 caused the ANZ board to defer the decision about the dividend to a later date. This may mean there is going to be a large dividend cut later, particularly as APRA wants banks to manage their capital this year.

Is the ANZ share price a buy?

The ANZ share price is currently trading at a level we saw during some parts of the GFC, though ANZ went as low as $12 in early 2009.

Warren Buffett once said some wise words for times like this: “Be fearful when others are greedy and greedy when others are fearful.” The market seems to be fearful with the ANZ share price, so perhaps it is a medium-term opportunity?

However, I’m not totally convinced that it is a good opportunity. It seemed like a more obvious bet at under $15.

The RBA interest rate is now 0.25%. The lower the official interest rate, the harder it is for banks to maintain their net interest margin (NIM). Transaction accounts are a good example of this effect. Banks aren’t likely to charge customers for keeping cash in the bank, so a reduction of the official rate by 0.25% means less margin for the bank if it reduces the loan interest rate for borrowers.

The dividend was an alluring reason for income-focused investors to buy ANZ shares. But it’s hard to say what the bank’s dividend policy will be going forward. More cash profit retained should translate into more earnings growth and a higher ANZ share price. However, large fully franked dividends are a good way to reward shareholders. It’ll be interest to see what the ANZ board does. 

If I were part of the bank’s leadership I’d consider a 50% dividend payout ratio. That could be a fair balance between dividends and future growth.

Foolish takeaway

I don’t think the ANZ share price is a bargain right now. But I don’t think it’s expensive either. Pleasingly, Australia’s economy seems to have moved into the recovery phase now, so hopefully the worst of the COVID-19 effects has passed. However, I believe the best way to growth your wealth could be to pick shares with better growth prospects. ANZ is already a large, mature business with a big market share of the mortgage market. 

More reading

• Can ASX big banks generate an attractive sustainable dividend yield from FY21?
• ASX 200 Weekly Wrap: ASX bears take control as market volatility returns
• ASX 200 falls 1.9%, big 4 ASX banks retreat
• 5 things to watch on the ASX 200 on Friday
• ASX 200 drops 3%, Webjet share price sinks

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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