Those companies which are expected to grow at a rate higher than the market growth rate are generally considered as growth stocks. Growth stocks have the potential to increase investors’ money by several folds.
How to identify growth stocks?
Lately, growth stocks have become popular among investors. Investors are increasingly seeking stocks that have the potential to grow in the future. Let’s take a quick look at few features of growth stocks which sets them apart from other stocks.
Preference for growth over Dividends– If an investor is investing in a growth stock, he/she expects to receive returns from future stock-price appreciation. To achieve this outcome, growth stocks generally don’t pay dividend to its shareholders, rather they reinvest their profits and retain earnings for future growth. The preference for growth over dividends, sets apart growth stocks from other stocks.
Future Growth- Growth stocks, as the name suggests, are expected to grow at higher than the average market rate. This means that the market is probably in the favor of these stocks. For example, right now in Australia, many technology stocks are considered as growth stocks because of the positive outlook.
Lower market Cap– Growth Stocks generally trade with lower market cap than the already matured stocks. Due to their low market cap, they have the potential to provide higher returns and that big value stocks. Growth stocks have the potential to increase investors’ money by several folds.
It is to be noted that, growth stocks are not those companies which already have big scale operations and market cap of several billions. These are comparatively smaller companies which have the potential to grow into multibillion companies.
Let us now look at 5 ASX- listed growth stocks which are under investors radar.
iSignthis Ltd (ASX: ISX)
Global payment company iSignthis Ltd (ASX: ISX) is differentiated by its unique digital identity, payment and banking services for (regulated) businesses and financial institutions the EEA, and shortly in Australia. iSignthis Ltd operates a sophisticated & patented anti-money laundering and anti-fraud system that also provides transactional security to business and retail customers.
The company’s inhouse developed platforms includes: ISXPay®, Paydentity™, Probanx® CorePlus and CoreConnect. These platforms allows it to deliver services to merchants and retail customers. The company can leverage its products to maximise its opportunities, without paying royalties or fees for core services. The company offer between 16 to 23 currencies natively to its merchants.
In the September quarter, the company received cash receipts of $8.326 million, up 38.5% on last quarter. During the quarter, the company earned revenues of $8.58 million, up by 36% on last quarter. At the end of September quarter, the company had cash at bank of $12.2 million.
(Source: Company Reports)
Qantas Airways Limited (ASX: QAN)
Qantas Airways Limited (ASX: QAN) performed well during Q1 FY20, with total group revenue up by 1.8% on pcp to a record $4.56 billion. However, Qantas’ Group Domestic Unit Revenue was down by 0.9% on pcp due to mixed market conditions.
Major developments made by Qantas during the quarter include:
- In-principle approval of a second Haneda slot for Qantas International, with additional Australia-Japan services starting in April 2020;
- Arrival of the ninth Qantas Dreamliner and the retirement of another 747, leaving six in the fleet;
- Regulatory approval for a new joint business with American Airlines, and announcement of two associated routes: Brisbane to Chicago and Brisbane to San Francisco;
- Completion of the first of three Project Sunrise research flights, with the first direct commercial airline flight from New York to Sydney cutting three hours of total travel time;
- Completion of the first of 12 Airbus A380 cabin upgrades, providing a 27 per cent increase in premium seating to meet demand and improve the economics of these aircraft;
- Qantas Frequent Flyer announced a new customer loyalty partnership with BP which will allow customers to earn Qantas Points on fuel and purchases in service stations;
- Expansion of Qantas Business Lounge in Singapore complete with the new First Lounge to open in November.
In the past five years, QAN stock has provided a return of 339.75% as on 23 October 2019. At market close on 25 October 2019, QAN stock was trading at a price of $6.250 with a market cap of around $9.86 billion.
Nanosonics Limited (ASX: NAN)
Healthcare company Nanosonics Limited (ASX: NAN) is involved in the development of innovative solutions for a world market demanding innovation to solve many intractable problems. The company’s trophon technology has a presence of over 20,000 globally installed devices, resulting in around 70,000 cycles every day – with each cycle contributing to mitigating against the spread of potentially fatal Healthcare Associated Infections (HAIs). The trophon installed base continued to grow strongly throughout FY19.
During FY19, Nanosonics achieved robust progress across its business, technical and corporate objectives. During the year, the company’s sales increased strongly by 39% to $84.3 million, reflecting the continuing strong growth in the installed base. The company’s operating profit before tax increased by more than 200% in FY19 to $16.8 million.
During the year, the company also expanded its international distribution agreement with GE Healthcare to cover the Nordics, Spain and Portugal. New distribution agreements were also entered into in Switzerland, Israel and Kuwait.
In the past five years, the company’s stock has provided a return of 574.87% as on 24 October 2019. In the last one year alone, the stock price increased by 120.07%.
At market close on 25 October NAN stock was trading at a price of $6.630 with a market cap of around $1.98 billion.
Xero Limited (ASX: XRO)
Provider of online accounting software, Xero Limited (ASX: XRO) achieved an impressive set of results in the year to 31 March 2019. During the year, the company improved its financial and operating metrics, while prioritising investment in growth.
During the year, the company successfully completed a US$300 million convertible notes issue, providing the business with financial flexibility to enhance and extend Xero’s small business platform and ecosystem capabilities, through complementary targeted acquisitions.
- Operating revenue for the year increased 36% to reach $552.8 million
- The EBITDA result – excluding the impact of impairments – increased by $42.0 million to $91.8 million, also demonstrating great progress
- Reported EBITDA in FY19 increased by 52% to $73.2 million, including impairment charges of $18.6 million and acquisition related costs.
In the past five years, the company’s stock has provided a return of 351.58% as on 24 October 2019. In the last one year alone, the stock price increased by 60.89%. At market close on 25 October 2019, XRO stock was trading at a price of $67.00 with a market cap of around $9.28 billion.
SEEK Limited (ASX: SEK)
Employment related services provider, SEEK Limited (ASX: SEK) recently announced pricing and contract changes to improve flexibility and efficiency to be rolled out to Australian customers on ‘subscription’ contracts. These changes are:
- Variable pricing of classic job ads
- Transition to new SEEK Contract
- Transition to standardised discounts based on committed annual job ad spend
- In FY20, the company is expecting its revenue to grow in the range of 15% to 18% (FY20 v FY19)
- EBITDA growth is expected to be in the range of 8% to 11% (FY20 v FY19)
- D&A in the range of A$135-A$140 million
- Reported NPAT in the range of A$145-A$155 million.
On a year to date basis, the stock has provided 32.85% as on 24 October 2019. At market close on 25 October 2019, the stock was trading at a price of $22.040 with a market cap of 7.69 billion. It is to be noted that the stock is trading near to its 52 weeks high of $22.250.
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