I think there are only a few ASX shares that are going to be able deliver very strong returns over the rest of the decade. If I were going to buy one share and hold it through the 2020s it'd be Pushpay Holdings Ltd (ASX: PPH).
What is Pushpay?
Pushpay is a digital donation business. It facilitates electronic giving to the large and medium US church sector.
Cash used to be the clear leader in how people donated to churches. Pushpay is at the leading edge of enabling donations these days with its technology. It offers an app for the church to connect with the congregation. Not only does it allow people to donate through the app, but there are various other community things that can be done in the app including livestreaming services.
Pushpay's technology is very useful in this period with COVID-19 impacting the US. Social distancing and restrictions have significantly brought forward adoption of Pushpay.
Why I think it's a great ASX share
I think a lot of shares are going to produce better returns than cash over the next five to ten years.
However, there are only a certain number of ASX shares that are going to end up outperforming the market by a lot.
I believe Pushpay could be one of those to do very well. On the revenue side of things, it was already doing well – in FY19 it grew revenue by 40%. In FY20 it grew revenue by 32%.
For me, one of the most attractive things about Pushpay is that it's rapidly growing its profit margins. In FY20 the ASX share managed to increase its gross profit margin from 60% to 65%. Even more importantly, its earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) margin also rose by five percentage points from 17% to 22%.
This rising profitability means that new revenue adds more to Pushpay's bottom line than in previous years. It shows that Pushpay is a very scalable business.
Whilst the company is aiming for US$1 billion of revenue, which represents huge growth from where Pushpay's revenue is at the moment (it generated US$129.8 million of revenue in FY20), I think it's the increase in profitability that is the most exciting thing about the ASX share.
Pushpay is steadily growing its market share of a sector that is likely to keep seeing regular yearly donations for a very long time. Plus, I think people would keep donating even during tough times – as they are right now. To me, Pushpay is a pretty defensive business on top its growth potential.
At the current Pushpay share price it's priced at 41x FY21's estimated earnings. This is the current year, where Pushpay is expecting to double its EBITDAF to a range of US$50 million to US$54 million.
Optionality for further growth
I think there's a lot of growth potential from just the core Pushpay business.
However, I believe that there is a lot of other growth avenues that Pushpay could target along the road. For starters, there are other countries with churches that it would be pretty easy for Pushpay to just shift its software across to.
There are obviously other religions that the ASX share could target in the US and abroad.
Outside of religious donations, there is a huge amount of global donations for other charities and causes that are processed by other providers that Pushpay could try to organically grow into, or acquire a bolt-on acquisition to kickstart that diversification.
This additional growth may not be at the front of Pushpay's plans, but I think it shows there is long-term growth potential with this business.
I think Pushpay is one of the most exciting shares on the ASX. I'd be very happy to buy some shares today.
