ASX growth shares could be the way to go in May 2022.
The post Here’s why I think these 2 ASX growth shares are top buys in May appeared first on The Motley Fool Australia. –
The ASX share market can be like a supermarket sometimes. There are times when particular products are on sale and may seem cheap enough to buy. However, if nearly everything is on sale at the supermarket, I’d want to choose my favourite meal ideas at the better price.
Translating that into ASX shares – a lot of ASX growth shares are much cheaper than they were at the start of the year. There are a lot of investments that now look like bargains to me. Below are two of my favourites.
Temple & Webster Group Ltd (ASX: TPW)
Temple & Webster is like the Amazon of Australian homewares and furniture. It sells hundreds of thousands of products. A lot of those products are shipped directly by suppliers, which reduces shipping times and reduces the need for Temple & Webster to hold as much inventory.
How much cheaper is the Temple & Webster share price? It’s down around 60% in 2022. Ouch. But, I think it’s now a really good long-term opportunity.
There is a long-term trend for more shopping being done online, which I think will benefit the business over time. It already claims to be a leading e-commerce retailer.
I think that the compounding growth of the business is compelling. In the four months to 30 April 2022, the business saw 23% revenue growth compared to the prior year. This was growth of 116% compared to 2020.
Increasing revenue and scale will help grow the operating leverage, allowing the business to re-invest for growth in things like marketing, technology development, product range and the overall customer experience. Increased scale will also help the ASX growth share achieve better unit economies, including cost advantages in product sourcing, logistics and marketing.
At this lower Temple & Webster share price, I reckon the business has a good future ahead.
Xero Limited (ASX: XRO)
The cloud accounting software business is my other pick for May 2022 (and the long-term).
There aren’t many large, high-quality tech shares on the ASX. But I think Xero is one of those great names.
It has a very gross profit margin of 87.3% — this is creeping higher every year. A strong gross profit margin means that most of the revenue turns into gross profit. That gross profit can be spent on areas that help grow and improve Xero, such as product development, marketing, wages and so on.
Eventually, I think that a high gross profit margin will allow Xero to generate a large net profit after tax (NPAT) when it is no longer investing so heavily in growth.
There are two other things that I really like about this ASX growth share.
It has a global subscriber base, which is quickly growing. At the end of FY22, it had 3.3 million subscribers (up 19% year on year). This is spread across places like Australia, the United Kingdom, North America and South Africa. There is a very large addressable market for Xero to target.
The other thing I like about Xero is its software as a service (SaaS) nature. It receives monthly revenue from subscribers and this allows investors (and management) to easily see what the next 12 months of revenue could be.
Xero’s annualised monthly recurring revenue (AMRR) increased 28% to NZ$1.2 billion in FY22. The actual FY22 operating revenue was NZ$1.1 billion. So, there’s already some revenue growth baked in for the next 12 months.
But these two ASX growth shares aren’t the only two I’d be happy to go shopping for. We’ll look at some of my other favourites another time.
The post Here’s why I think these 2 ASX growth shares are top buys in May appeared first on The Motley Fool Australia.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon, Temple & Webster Group Ltd, and Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool Australia has recommended Amazon and Temple & Webster Group Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.