Investing is perhaps one of the most prominent ways to secure income, and its benefits are catalysed by the fact that investors always have an ocean of options to cherry-pick and put their money on, depending upon their requirements and financial position.
This article would revolve around an attractive option available for investors, which tops the list of the best stocks to invest in, as per many market experts and investing pioneers- Growth stocks. We would also acquaint ourselves with five growth stocks, listed and trading on the Australian Securities Exchange, bur foremost, let us break down the concept of Growth stocks:
Growth Stocks and Features
The stock of a company which generates significant and viable positive cash flow, and the earnings and revenue of which are likely to be on a growth trajectory and other players in the same industry are referred to as growth stocks. Simply put, growth stocks are the company’s securities, which is anticipated to increase at a notable above-average pace in the market.
Some examples of growth stocks from across the world include Google, Starbucks, Microsoft, Salesforce, Amazon and Tesla.
Below are a few features of growth stocks and companies that they pertain to:
- Ideally, these companies have a noticeable competitive edge, which fends off competitors.
- Growth stocks generally do not pay dividends, as the company believes in reinvesting its earnings.
- Investing in growth stocks is a risky affair, given the no-dividend policy.
- One way to fill in ones’ pocket through investing in growth stocks is by capital gains (after selling ones’ shares).
- Growth stocks are available in almost all sectors- biotech, technology and consumer discretionary, to name a few.
- Growth stock companies tend to have unique product lines and are innovative players.
- Growth stock companies have a loyal customer base, catalysed by their innovative
Importance of Growth stocks
It should be noted that even when growth stocks do not commit a dividend for investors and are exposed to occasional wild price swings, they remain to be an attractive option for investors. This is because a few growth stocks proceed to generate massive volume of wealth for the investors, way above the original investments. The trick is to tap and buy the right company, and hold them in one’s long-term investing portfolio, as these companies are bound to do well in an ideal scenario.
Moreover, market experts believe that diversification is the key. This means purchasing a bunch of growth stocks as an alternative to just one or two, bearing a potential to grow an investor’s odds of purchasing extreme winners.
It should be noted that over the years, growth stocks have started outperforming value stocks in a big way, mostly because investors are on a look out to take advantage of market anomalies. Besides, growth stocks have had historically low interest rates, which is a huge add-on to an investor’s portfolio in the current times, where global growth does not seem to undergo a rebound soon and interest rates are likely to remain low.
In this context, let us look at the five growth companies, the stocks of which trades on the ASX:
Companies under Discussion
|Company Name||Sector||Company Business|
|Pro Medicus Limited (ASX: PME)||Healthcare||Provides radiology information systems, Picture Archiving and Communication Systems and advanced visualisation solutions.|
|A.P. Eagers Limited
|Consumer Discretionary||An automotive retail group, with the core business being ownership and operation of motor vehicle dealerships.|
|Information Technology||A market leader of PCB design tools.|
|Consumer Discretionary||A digital travel business tapping both B2C and B2B areas.|
|The A2 Milk Company Limited (ASX: A2M)||Consumer Staples||Producer, marketer and seller of branded dairy and infant formula products.|
Pro Medicus’ Founders sell shares
On 6 September 2019, PME notified on an update pertaining to the company’s announcement in February that encouraged founders to sell up to 3 million shares each, with the intention to enhance the liquidity of PME shares. In March, the founders had sold 1 million shares each and a further 1 million shares each in the present trading window. Further, the Board intimated that founders would not sell any further shares before February 2020 (when PME is expected to announce its half-year results). There is a possibility that the sale of shares might not occur even then.
AP Eagers’ off?market takeover offer
On 16 September 2019, the company pleasingly announced that it held 91.1 per cent relevant interest in the shares of Automotive Holdings Group Limited (ASX: AHG) and intended to compulsorily acquire the remaining AHG shares.
The off-market offer for the acquisition of the remaining shares was lodged with ASIC and the ASX on 17 September 2019. It is expected that AHG would be removed from the official list of ASX post the close of the trade session on 27 September 2019, after the AHG shares were suspended on 24 September 2019.
The image below showcases the Top 5 holders of AP Eagers, as on 24 September 2019:
(Source: APE’s Report)
Altium Limited’s Financial Results
In the August reporting season of publicly listed Australian companies, ALU released its final and audited result for the year ending 30 June 2019, intimating that it had achieved a revenue growth of 23 per cent to USD 171.8 million. The highlights of the result are discussed under:
- net profit after tax was USD 52.9 million;
- revenue of USD 171.8 million;
- sales amounted to USD 177.2 million;
- EBIT was USD 56.9 million;
- EBITDA margin of 36.5% up from 32 per cent;
- EPS of 40.57 cents;
- Operating cash flow of USD 69.1 million;
- A final dividend of A$18 cents with full year dividends up by 26 per cent;
- Subscriber seats reached 43,698.
Full Year Results Key Metrics (Source: Investor Presentation)
Effect of Thomas Cook’s Compulsory Liquidation on Webjet
On 23 September 2019, London-based travel group Thomas Cook went into compulsory liquidation, which means that it ceased trading and entered administrative dissolution. The Group was a customer of WEB’s WebBeds B2B business, and according to the company, the liquidation would consequently lead to a loss in the Total Transactional Value in FY20, which was expected to range between $150 to $200 million. Moreover, the Group owed WEB almost EUR 27 million in outstanding receivables, which would be treated as a one-off expense to the income statement and bears no material adverse impact on WEB’s liquidity.
The company intimated that the liquidation would not impact the 3,000 hotel contracts that were acquired from Thomas Cook in August 2016, and most of these contracts had already been sold at full margin to non-Thomas Cook customers, catalysing profitable growth of WEB’s European business wing.
However, the company has reduced the FY20 EBITDA range by up to $7 million, and a guidance would be provided in WEB’s upcoming AGM on 20 November 2019.
The A2 Milk Company’s Organisational Announcement
On 23 September 2019, the infant formula space growth space, A2M intimated that its CFO, Mr Craig Louttit would step down from his position (for personal reasons) but serve as the Deputy Chief Financial Officer, a senior and integral role. Replacing him would be Mr Race Strauss, who is an experienced finance executive with extensive packaged goods background and global exposure. He would commence work during the second half of FY20 and his experience in the China and Asia markets would propel A2M’s strategy to tap the Chinese infant formula market.
Stock Price Information
Let us look at the stock performance and YTD generated, of the discussed stocks, post close of the trade session on ASX on 27 September 2019:
|Company Name||Stock Price ($)||Performance (%)||YTD Return (%)|
|Pro Medicus Limited (ASX: PME)||28.00||Down by 2.2%||151.77%|
|AP Eagers Limited (ASX: APE)||13.94||Up by 2.878%||125.46%|
|Altium Limited (ASX: ALU)||34.16||Up by 0.147%||55.99%|
|Webjet Limited (ASX: WEB)||11.4||Up by 1.968%||5.57%|
|The A2 Milk Company Limited (ASX: A2M)||12.60||Down by 0.816 %||17.88%|
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