Out of ideas? Here are three ASX growth shares worth considering for your portfolio.
Kogan
Kogan.com Ltd (ASX: KGN) is starting to looking quite fairly priced around current levels in my view. While the valuation has trended downwards a bit recently, it’s mainly due to the threat of rising bond yields rather than its recent operational performance, so it’s not too much of a concern for me.
KGN share price
Something I often try to find when identifying attractive businesses is expanding margins over time as the business grows.
To be more specific, when a company expands by investing in a bigger factory as an example, it may achieve some economies of scale and become more efficient, which will drive down costs.
For a company like Kogan, it may have a distribution centre with a high amount of fixed costs. Expanding its product range can allow it to drive top-line revenue growth with underlying costs rising at a much lower rate.
Over the last several years, you can see in the image below that Kogan’s operating earnings before interest, tax, depreciation and amortisation (EBITDA) margins are growing at a much faster rate than revenue growth, indicating it’s starting to see some nice scale advantages.
Kogan has indicated that further cost synergies will be realised through its Mighty Ape acquisition as it will combine back-office functions and sourcing for private label products.
To read more about Kogan, click here to read: Is it finally time to invest in Kogan (ASX: KGN)?
Infratil
Infratil Ltd (ASX: IFT) is a New Zealand-based infrastructure investment company that primarily invests in renewable energy, airports, data & connectivity and social infrastructure businesses in growth areas.
You can almost think of Infratil as a publicly-listed private equity company, as it has a long history of buying discounted assets and investing heavily in them to sell at much more attractive prices.
Back in 2010, Infratil went halves with New Zealand Superannuation Fund (NZSF) and invested NZ$310 million each to buy the assets of what was Shell New Zealand.
Just a few years later and after upgrading the old infrastructure, both companies walked away with over NZ$2 billion in proceeds after they floated the company on the NZX. Not a bad return off an investment of just $420 million…
In addition to Infratil coming across as a fairly ethical investment choice, it has some other quality characteristics that I’d also typically look for in a potential investment.
Late last year, Infratil announced it would acquire a 60% stake in an Australian diagnostic imaging business called QScan from Quadrant Private Equity in a A$330 million transaction. It’s estimated that around 85% of the industry is funded through Medicare, meaning revenues could potentially be quite stable and non-cyclical.
Also worth noting is Infratil’s stake in Canberra Data Centres (CDC), which provides outsourced data centre services mainly to government clients. I think this sector will be further accelerated by some structural long-term trends and data centre operators may stand to be significant beneficiaries.
For more reading on Infratil, click here to read: Why I think Infratil (ASX: IFT) may be one ASX growth share to look out for.
Lovisa
I think Lovisa Holding Ltd (ASX: LOV) might be one of the highest quality retailers on the ASX.
LOV share price
Despite its H1 FY21 results showing a slowdown in sales and profitability, the share price subsequently rallied over 35% on the day.
Like many other retailers, COVID-19 has been an ongoing headwind for over a year now. However, I think management has made some excellent decisions during this time, which will help catapult its success as the world emerges stronger out of the pandemic.
Even though retail spending has been falling in some of its markets, management has used this opportunity to buy discounted store locations, which may seem like the complete opposite of what would otherwise seem to be logical.
Further upside in Lovisa seems on the cards, especially after its acquisition of German retail distributor Beeline in November last year, in which it paid just €70. It’s estimated Lovisa will be able to expand its store network by a maximum of 110 new stores as part of the deal.
Lovisa has a fairly mature business in its Australian segment, which has proven to be a highly cash-generative operation. While this doesn’t guarantee success as the business continues to expand overseas, it somewhat de-risks the growth story to some extent given the track record of the Australian segment.
To read more on Lovisa, click here to read: Why I think Lovisa (ASX: LOV) is one of the highest-quality ASX retail shares.
