I think that in periods of uncertainty and volatility, high-quality ASX shares could be the way to go.
Quality could mean different things to different people.
It could mean great management. Quality could mean the resilience of earnings. It could mean a strong balance sheet. There are other things it could refer to like growth, return on equity (ROE) and so on.
Here are two quality ASX shares to consider:
Betashares Global Quality Leaders ETF (ASX: QLTY)
This is an exchange-traded fund (ETF) that is based on a portfolio of quality businesses which rank well on a number of factors: return on equity, debt-to-capital, cash flow generation ability and earnings stability.
When you combine those four factors together, what remains is a quality group of businesses which are very profitable and produce good cash flow.
It’s not just a US-based portfolio, ‘only’ 60% of country allocation has (currently) gone to the US. Plenty of other countries get good weightings such as Japan, Switzerland, the Netherlands, Hong Kong and France.
There are 150 names in this portfolio, which means it’s nicely diversified in my opinion. Some positions include: Nvidia, AIA, Applied Materials, Advanced Micro Devices, ASML, Meta Platforms (Facebook), Intel, Visa, Accenture and Alphabet.
With all of these positives, the final one to note about this quality ASX share is that it only comes with an annual fee of just 0.35%.
Volpara Health Technologies Ltd (ASX: VHT)
I think that Volpara Health Technologies is one of the most promising quality ASX shares. The Volpara share price has fallen over 20% since the start of the year, but I think this could be a promising time to consider the business.
It provides breast screening software, as well as risk analysis for those women. Volpara also has practice management software.
Volpara is steadily winning over more clients in the US. It now has a market share of over 35% of US women being screened. That’s a very strong position to be in for the business. It has a very high retention rate, so once users are ‘in’ the system, they’re sticking around. I wouldn’t be surprised to see the market share continue to rise in the US.
Annual recurring revenue (ARR) also keeps rising, giving investors good visibility about the next 12 months of base revenue. At 31 December 2021, Volpara’s ARR was was US$21.5 million, up almost US$1.1 million over the September 2021 quarter. Volpara has a very high gross profit margin, so most of the new revenue turns into more gross profit.
Volpara is going to try to grow its average revenue per user (ARPU) in a number of ways, by selling a platform, not just a product. Most new sales are now for two or three products, representing significantly increased ARPU.
Organic ARPU growth can happen thanks to fresh deals signing up with multiple products. It can also upsell to existing users. The company said it sees a 200% to 300% increase in recurring revenue for those that upgraded.
I think that the company has a very promising future with non-US growth over the long-term. Europe and Canada could be two fruitful areas to pursue.
Lung cancer screening is another area that the quality ASX share has a presence in, which could become a much bigger opportunity over time as the issue gains patient awareness.
