In this article are two great ASX growth shares that are rated as buys, including infant formula business A2 Milk Company Ltd (ASX:A2M).
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There are some great ASX growth shares that are rated as buys by one of the Motley Fool investment services.
Here are two of those ASX growth share picks:
A2 Milk Company Ltd (ASX: A2M)
A2 Milk is a leading infant formula business with its A2 Platinum range. It also sells things like liquid milk, milk powder and ice cream.
Whilst the company’s headquarters are based in New Zealand, it has sizeable operations in Australia, Asia, the US and Canada.
The expansion into Canada is only a recent addition. It is in an exclusive licensing agreement with Agrifoods Cooperative for the production, distribution, sale and marketing of A2 Milk branded liquid milk for the Canadian market.
The A2 Milk share price has fallen by 28% since 30 July 2020. The ASX growth share recently gave a trading update.
It’s suffering from a variety of COVID-19 issues including the flow-on effect of pantry destocking continuing into FY21 after strong sales in the third quarter of FY20 and lower than anticipated sales to retail daigous in Australia because of reduced tourism from China and international student numbers.
In September it said it also started to see additional disruption to the corporate daigou and reseller channel, particularly because of the stage 4 lockdown in Victoria. That lockdown has now finished.
A2 Milk explained that sales in the daigou channel represent a significant portion of infant formula sales in Australia and New Zealand, so it expects ANZ revenue to be materially below plan for the first half.
However, the ASX growth share said that with strong growth of its Chinese infant milk formula business, management think it’s a single channel logistical issue and A2 Milk believes the daigou impacts are just short-term.
A2 Milk is expecting revenue to fall by 4% to 10% in the first half, but then grow by 4% to 10% overall in FY21.
At the current A2 Milk share price it’s trading at 23x FY23’s estimated earnings according to Commsec.
A2 Milk is currently rated as a buy by the Motley Fool Share Advisor service.
Altium Limited (ASX: ALU)
Altium is an electronic PCB software business. The ASX growth share has grown significantly over the past five years. The Altium share price has risen by 653% since November 2015.
COVID-19 caused disruption to Altium’s FY20 result – it impacted its revenue and its underlying earnings before interest, tax, depreciation and amortisation (EBITDA) margin. Altium had to reduce prices and extend payment terms to continue to bring in new clients during the final quarter of FY20. That’s why normalised earnings per share (EPS) only went up 5% in FY20.
However, the company pointed to the fact that it successfully launched Altium 365, its new cloud platform, and it’s pivoting the business towards this product to ensure its success.
Altium said that Altium 365 was causing excitement and gaining strong early adoption. Altium CEO Mr Aram Mirkazemi said: “This is most heartening and an early validation of our vision and strategy for this new digital platform to transform the electronics industry.”
The ASX growth share is still aiming for 100,000 subscribers by 2025 to achieve market leadership, where it has just passed the half-way mark. However, it may take another six to twelve months to reach its 2025 goal of US$500 million in revenue.
According to Commsec numbers, at the current Altium share price, it’s trading at 47x FY23’s estimated earnings.
Altium is still rated as a buy by the Motley Fool Pro service.
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Tristan Harrison owns shares of Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Altium. The Motley Fool Australia owns shares of and has recommended A2 Milk. 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.