Right now investors have a range of areas to choose great ASX shares for growth. On one hand we see radical changes in short term credit with the buy now, pay later companies led by Afterpay Ltd (ASX: APT). On the other hand, changes in the world's security outlook has boosted defence shares. Furthermore, growth shares are springing up in technological and medical areas with companies such as Recce Pharmaceuticals Ltd (ASX: RCE).
When investing in ASX growth shares, it's important to remember 3 pieces of advice. First, with great upside potential comes the ability to rapidly go to zero (this is what high risk looks like). Second, always consider investments over a minimum 3–5 year time frame. Third, do not commit to invest anything more than you can live with losing.
So, if you have the nerve for investing in growth stocks, then here are 3 that I think are well worth your attention.
3 ASX shares with big potential
Fintech sector
The finance technology, or fintech, sector in Australia is fascinating. This is an area where companies are delivering financial services using modern technologies.
In this space, the ASX share that I believe is under appreciated is the blandly named CML Group Ltd (ASX: CGR). I believe this is a company made for our times. It provides debtor finance; that is, securing short-term finance with assets other than property. The largest example of this is invoice financing. CML Group will take your invoice as security and fund you up to 80–90% of it, with the loan paid back when the invoice is paid.
Short term credit like this is vital to small businesses for cashflow management. The "tech" part of this fintech is its recent acquisition of a a software-as-a-service (SaaS) website called Skippr. The platform integrates with common fintech platforms like Xero Limited (ASX: XRO) and MYOB, as well as a number of others.
It provides small business with a subscription-based approach to quickly access short-term finance. It also automates a lot of the process making it feasible for CML Group to finance much smaller companies. Previously, it had to target companies with receivables of $200,000 or more to make it profitable.
Aside from the business dynamics, there are a number of other reasons why I favour this company. First, it has a solid financial track record. In fact, over an 8-year period it has grown its earnings per share by about 12% per year. Second, it has a small market capitalisation. At $78.33 million, the idea of multiplying one or two times the initial investment is believable. Last, at its current price it has a trailing 12-month dividend yield of 6.67%, which I find respectable.
Biotech sector
There are many innovative biotech ASX shares that are shaping the future not only in Australia, but throughout the world. Dimerix Ltd (ASX: DXB) is currently developing a drug, DMX-200, to treat diabetic kidney disease and focal segmental glomerulosclerosis (commonly referred to as FSGS). FSGS is a scarring of the kidneys and some cases may end in kidney failure, requiring dialysis or a kidney transplant.
Proteinuria, or protein in the urine, is a sign of kidney disease. DMX-200 demonstrated a 29% reduction in protein for all test subjects versus the placebo. Moreover, 29% demonstrated a greater than 40% reduction. In the first half of CY21 the company plans to commence the investigational new drug process with the FDA in the USA.
Dimerix is valued at $92.94 million. Year to date, the company's share price has risen 261%. This company is a pure research organisation and it may take a year or so to start seeing real on the ground results. However, I think the ASX share price is likely to continue rising over the near term as it moves closer and closer to production. Most importantly, the potential addressable market for this company is massive and global.
Defence sector
In the defence sector there are a number of ASX shares worth looking into. These include aluminium ship building giant Austal Limited (ASX: ASB), sensor technology experts Electro Optic Systems Hldg Ltd (ASX: EOS), and body armour manufacturer Xtek Ltd (ASX: XTE). However, personally I think near-term growth is likely to come from Orbital Corporation Ltd. (ASX: OEC).
Orbital is the world leader in propulsion systems for unmanned aerial vehicles (UAV) or drones. The company recently announced it had achieved revenue of $33.8 million. This is an improvement of 121% on the FY19 revenue. Moreover, it now has 2 engine models in continuous production for Insitu, a subsidiary of Boeing. The 3rd of the 5 contracted engine models is scheduled for production in 2021.
In addition, Orbital signed a new MoU with one of Singapore's largest defence companies for the design, development and initial production of a multi-fuel UAV engine. Furthermore, it has a new contract with leading aerospace company Northrop Grumman for a hybrid propulsion system for a vertical take-off and landing UAV.
Foolish takeaway
There are many ASX shares that are poised for growth over the next 3–5 years. I have chosen 3 that I believe have strong momentum and are likely to see at least a doubling of their share price. Each of the 3 ASX shares above is advanced in their technologies, with CML and Orbital already generating revenues. Lastly, each of them has a very sizeable addressable market.
