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Growth Stocks
Growth Stocks present an opportunity for the investors to invest in the company that is actively pursuing strategies, resulting in growing revenues, earnings, organic growth etc. These companies tend to pursue aggressive growth strategies like mergers, takeovers, partnerships, strategic alliance, joint ventures etc.
An investor should not expect a high dividend pay-out from the growing companies, or even a dividend for some growing companies. These stocks have relatively better upside potential, attributing to relatively higher risk as well.
The expectations from a growing company are generally higher, resulting in a high price to sales or high price-earnings ratio. Meanwhile, the risks are higher in growing companies, as the expectations are higher, and failing to meet expectation often results in potential risk to the market price of the stock.
Growth Investing seeks to carve out companies having the potential to deliver robust growth, resulting in larger and profitable businesses. As every company start small, growth investing requires an investor to pick up companies that have the potential to deliver on the expectation, depending on the business, and numerous factors impacting its business.
Altium Limited (ASX: ALU)
Altium has been developing and selling electronic design tool since 1985, allowing designers to leverage devices and technology developed by the company. The stock of the company is a component of major indices in Australia.
In FY 2019 ended 30 June 2019, the company recorded solid revenue growth and extended its profit margin. It posted a revenue of USD 171.8 million for the period, up by 23.1% over FY 2018.
Its net profit after tax for FY 19 improved 41.1% over the previous year, resulting in USD 52.9 million for the period. Robust profit growth generated earnings per share of US 40.57 cents per share for the period.
Altium is progressing effectively to deliver on its commitment to achieving USD 200 million in revenue or better. During FY2019, the company witnessed double-digit revenue growth in all segments, contributing to higher profits.
Targets (Source: ALUâs FY19 Full Year Investor Presentation)
In April this year, ALU finalized the acquisition of Gumstix Inc., which specialises in embedded hardware development and production. The companyâs strategy looks to achieve PCB market leadership by 2020 based in multi-product and multi-channel capabilities.
During FY 2019, the Board and Systems business revenue was USD 126.8 million with all-region reporting positive results. EMEA grew its revenue to USD 44.6 million, an increase of 15%.
Further, the Americas achieved a revenue of USD 50.9 million. In China, the revenue of the company was USD 19.8 million, depicting a growth rate of 37%.
Outlook
The company has been progressing towards its subscriber target of 100k for market dominance by 2025. Its target is to achieve USD 200 million in revenue by 2020 through a proliferation of electronics via rise of smart connected devices.
ALU intends to increase market share by winning businesses from competitors. Meanwhile, it would pursue opportunities arising from partnerships and M&As in order to underpin the long-term vision to create product design and realisation platform.
On 27 September 2019, the ALU stock quoted $34.16, up by 0.1% relative to the last close. Over the past one year, the return of the stock has been 29.95%. Over the year-to-date period, the return of the stock has been 55.99%.
REA Group Limited (ASX: REA)
REA provides property and property-related services on its website and mobile applications in Australia and Asia. It is engaged in creating an eco-system of the property-related marketplace across the property, finance and related services.
In FY 2019 ended 30 June 2019, the total operating income for the company was $874.9 million, up by 8% over the previous year, driven by growth in listing depth of products and incorporation of full-year results of Hometrack Australia Pty Ltd, which was not included in the previous year.
The operating expense of REA increased due to the inclusion of Hometrack, investment in product innovation and variable costs on Audience Maximiser products. Besides, the operating income grew across all the regions for the period, and Australia remained a major revenue driver for the business.
Capabilities (Source: REA Group Investor & Analyst Presentation)
In FY 2019, the company had repaid $120 million related to the syndicated loan facility (sub facility B). At the year-end, the company had a cash balance of $137.9 million and net current liabilities of $138 million. It had reclassified the final tranche of the syndicated loan facility of $240 million due in December 2019.
REA expects to repay the loan facility via debt financing and cash reserves. Besides, the company had incurred a total impairment expense of ~$189 million in FY 2019. $173.2 million impairment expense was recognised against goodwill in relation to Asian CGU, attributing to the macroeconomic environment and government cooling measures.
It also incurred an impairment of investment in associate for $15.74 million. Consequently, the net profit after tax for the period was down by 58% to $105 million in FY2019 compared to $252.8 million in FY2019.
On 27 September 2019, the REA stock quoted $108.27, up by 0.8% relative to the last close. Over the past one year, the return of the stock has been 24.65%. Over the year-to-date period, the return of the stock has been 44.63%.
SEEK Limited (ASX: SEK)
SEEK is the provider of online matching and hiring of candidates with career opportunities and related services. In addition, the company also invests in early-stage businesses and technologies in the human capital management and market.
In FY 2019 ended 30 June 2019, the company had posted revenue growth of 18% to reach $1,537.3 million in revenue driven by Zhaopinâs online and offline divisions, an increase in revenue in ANZ, and robust growth in revenues in Asia, particularly from Hong Kong and Singapore.
Dividend Pay-out (Source: SEKâs FY19 Full Year Results Presentation)
Previous yearâs results included significant items of ($147 million), consisting of fair value gains in investments, and impairment charges. As a result, net profit after tax for FY 2019 was up 120% to $198.4 million in FY2019 compared to $90 million in FY 2018.
At the year-end, the company had net debt of $756.9 million, comprising of unsecured syndicated debt facility of $625 million, USD 575 million, and issued debt of $175 million. Besides, Zhaopin has entrusted facilities of USD 385 million and working capital loan facility of RMB 200 million.
At the year-end, the $1,606.1 million of total available facilities were drawn down, and $603.3 million was available in undrawn capacity.
On 27 September 2019, the SEK stock quoted $21.68, up by 0.5% relative to the last close. Over the past one year, the stock has generated 5.17%. Over the year-to-date basis, the return of the stock has been 31.14%.
Nearmap Limited (ASX: NEA)
Nearmap is a provider of online photo mapping through its wholly owned subsidiaries incorporated Australia and the USA. The services can be availed through web app, cloud and API integration.
In late August 2019, NEA announced that Tracey Horton AO had joined the Board as an Independent Non-Executive Director. Ms Horton has been associated with Bain & Company, Poynton & Partners and Reserve Bank of Australia during her career.
She brings in significant experience in the field of global strategy, and she also serves as a Non-Executive Director of GPT Group Limited (ASX: GPT).
Customers (Source: NEAâs FY19 Analyst Pack)
In FY 2019 ended 30 June 2019, the company reported a total revenue and other income of $79.4 million, up by 47% compared to $54.1 million a year ago. Nearmap was able to achieve solid results due to continued customer retention and growth in the customer base.
During FY 2019, the company targeted US sales and marketing initiatives including the launch of the second US sales office in New York. Consequently, sales and marketing costs were 22% higher than the previous year.
Further, the capture program expansion was also undertaken by the company, including the first capture of Canadian content that covered 64% of the population. Cash costs related to capturing increased by 22% over FY2018. The company also launched product and content expansion that included 3D Online, beta Artificial Intelligence product.
In addition, the depreciation and amortisation expenses of the period increased to $26.7 million compared to $13.3 million in FY 2018. This was attributed to a change in accounting estimate to reduce the amortisation period for capitalised capture costs from five years to two years.
Consequently, the net loss after tax for the period was $14.9 million compared to $11 million in the previous year.
On 27 September 2019, NEA was trading $2.61, up by 1.95% relative to the last close. Over the past one year, the return of the stock has been 47.13%. Over the year-to-date basis, the return of the stock has been 67.32%.
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