I'm biased towards ASX growth shares. If you don't require an income from your portfolio to live off and are happy to park the funds in the ASX for the long term, I think there's an argument to be made in their favour. Allowing a compounding return to grow pre-tax can offer greater returns, compared to a similarly returning dividend share. To see how this can work, check out this simple calculation to explain it.
In saying this, I still buy and hold dividend paying companies. My portfolio just has a skew towards those offering growth. I believe there are many great options offered by the ASX right now, however the 2 below are among my favourites to buy this week.
Nearmap Ltd (ASX: NEA)
Nearmap provides aerial imagery to broad business sectors including construction, engineering, solar and government. Despite the loss of 2 large enterprise customers in 1H20, it still managed to grow its annualised contract value (ACV) by 23%. This growth was delivered thanks to an 8% increase in subscriptions and 14% growth in the average revenue per subscription (ARPS).
Nearmap shares have jumped recently off the back of a positive announcement to the market. However, I still think they offer long term investors a great risk/reward trade off. Its announcement noted that it has not seen a material impact on its current trading conditions due to the coronavirus crisis. In addition, it is taking cost management initiatives to maintain a strong balance sheet, with the intention of reaching cash flow break-even by the end of FY 2020.
After its strong domestic growth, Nearmap's business has also grown strongly in the US market. The larger, more densely populated US market offers significantly higher ARPS, meaning the runaway for its US portfolio is far greater than that of its domestic one. In addition, as Nearmap looks to expand globally in the future, these more favourable market dynamics should help to bolster its growth. I'm certainly excited to see where it will be in 5 and 10 years time.
Megaport Ltd (ASX: MP1)
Megaport provides 'elastic interconnection services' to companies around the world. Its unique network-as-a-service (NaaS) offering allows customers an elastic capacity, with flexible terms where you only pay for what you use. This is in stark contrast to traditional fixed network capacity, with lock-in, long-term contracts and expensive pricing models.
It already has a growing global network across 21 countries with major customers including Tesla, Amazon, Disney, and Ramsay Health Care Limited (ASX: RHC).
Megaport recently announced a 19% increase in its monthly recurring revenue. This was driven by a lift in customer numbers and an increase in the total number of services. Its path to profitability remains firmly on track, thanks to continued execution, network expansion and operational goals. This path is evident through its significantly improving earnings before interest, tax, depreciation and amortisation margin.
After recently completing a capital raising, Megaport plans to use the proceeds for accelerating growth. The funds will drive an expansion of the sales team, increased software and product development, an expanding footprint, upgrades to its core network and also provide a source of funds for strategic opportunities.
Megaport provides an exciting opportunity to customers through its platform – excitement that I believe is mirrored for shareholders who are willing to hold on for a long ride.
