2 compelling ASX shares that could be buys in October 2021

Lovisa and BWX are two ASX shares that may have good growth potential.

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These 2 ASX shares in this article may be compelling ideas to think about in October 2021.

Businesses with global growth aspirations give themselves a larger potential growth runway because of the larger addressable market that they have.

Companies that have growing profit margins could also be ones to look at because of their ability to grow profit at a faster pace than revenue. The profit is often what investors like to consider when it comes to the valuation of a business.

Lovisa Holdings Ltd (ASX: LOV)

Lovisa is a business that looks to sell affordable jewellery to consumers. COVID-19 caused a lot of disruption to the company which forced store closures across its network.

The company saw Victorian stores closed in the first quarter of FY21, as well as some of its international stores at various times.

The company got back to delivering profit growth in FY21, it demonstrated operating leverage across the business. Whilst revenue increased 18.9% to $288 million, pre-AASB16 earnings before interest, tax, depreciation and amortisation (EBITDA) rose 34.6% to $60.2 million, earnings before interest and tax (EBIT) went up 39.4% to $42.7 million and net profit after tax (NPAT) rose 43.3% to $27.7 million.

Management attributed part of the ASX share's profit growth with store wages being well managed and the tightening of support structures implemented during FY20 helping to offset increased logistics costs.

The Beeline acquisition added 87 new stores and six new European markets to the business, which significantly accelerated its European expansion. More than 70% of its stores are outside Australia now.

Lovisa said that trading in the first eight weeks of FY22 was strong for stores in regions were COVID restrictions were low and stores were able to trade. Analysts think there is a lot of demand in the market for the company's products.

It's currently rated as a buy by the broker Morgan Stanley, with a price target of $21. The broker thinks that the Lovisa share price is valued at 32x FY23's estimated earnings.

BWX Ltd (ASX: BWX)

BWX is one of the world's largest natural beauty companies with a number of different businesses including Sukin, Andalou Naturals, Mineral Fusion, Nourished Life and Flora & Fauna. It recently announced the acquisition of 50.1% of Go-To-Skincare, which offers a range of products within the "masstige" segment of the broader premium skincare category.

Whilst the beauty market is seeing a steady growth in revenue, the natural beauty segment is growing even quicker, with consumers wanting products that are reportedly better for themselves and the planet.

Profitability has been increasing across the business. In FY21, BWX's gross profit margin went up 134 basis points to 59.3%, EBTIDA increased 11.5% to $34.5 million (beating guidance) and statutory net profit rose 60.9% to $23.7 million.

Connecting directly with consumers is a key focus of the ASX share by building and scaling this part of the business. Management see this segment becoming a more significant growth engine. Combining Flora & Fauna with Nourished Life can create a leading online retail platform and an opportunity to bring more consumers to the natural category, according to management. The business is going to leverage more consumer data to support better decision making. In FY23, it expects to grow direct-to-consumer revenue to 38% of total revenue, up from 29% in FY21.

It's currently rated as a buy by the broker Macquarie Group Ltd (ASX: MQG), with a price target of $5.40. The broker is attracted by the Flora and Fauna acquisition.

According to Macquarie, the BWX share price is valued at 32x FY22's estimated earnings.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BWX Limited and Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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