Any investor smart enough to have bought Afterpay shares at their initial public offering (IPO) price of just $1 back in 2016 can attest to the potential power of ASX growth shares.
The buy now, pay later (BNPL) stock closed its last day of trade at $66.47 on 31 January 2022, after having been acquired by US tech giant Block Inc (ASX: SQ2). With eye-popping gains of more than 6,500% in less than six years, this former darling of the S&P/ASX 200 Index (ASX: XJO) helped build serious wealth for its shareholders.
An investment of just $2,000 in the Afterpay IPO would have ballooned to a whopping $130,940 by the company's last day of trade. And that's assuming an investor held on until the final day of trade. For those savvy enough to sell out at the stock's all-time high of $160.05, an initial $2,000 investment would have been worth $318,100!
But alas, for every Afterpay, there's been many a sorry growth-stock tale on the ASX. Like that of another BNPL player, Zip Co Ltd (ASX: ZIP), which has seen its share price dwindle from a high of more than $7 in early 2021 to around 65 cents today. So, whilst growth investing can be highly lucrative, it can also be extremely risky, especially if buying stocks based on fads without sufficient due diligence.
On that note, we asked our Foolish contributors for their thoughts on which ASX growth shares they believe are high quality and offer significant potential upside right now. Here is what the team came up with:
6 best ASX growth shares for 2023 (smallest to largest)
Betashares Global Cybersecurity ETF (ASX: HACK), $592.43 million
Temple & Webster Group Ltd (ASX: TPW), $638.11 million
Xero Limited (ASX: XRO), $11.09 billion
IGO Ltd (ASX: IGO), $11.48 billion
WiseTech Global Ltd (ASX: WTC), $18.10 billion
Aristocrat Leisure Limited (ASX: ALL), $21.86 billion
(Market capitalisations as at market close on 23 January 2023)
Why our Foolish writers love these ASX growth shares
Betashares Global Cybersecurity ETF
What it does: The idea of this exchange-traded fund (ETF) is that it tracks an index of cybersecurity shares around the world. It owns shares in both global leaders and emerging players in the sector. It has a total of around 40 holdings.
By Tristan Harrison: 2023 could be another year of volatility and uncertainty for global stock markets, so I'm looking for investments that can grow earnings this year and beyond.
Cybercrime, sadly, is on the rise. According to the Australian Cyber Security Centre (ACSC), the number of cybercrime reports in FY22 increased by 13% year-on-year to 76,000. ACSC said the cyber security incidents it responded to were "growing in severity" as well.
This means businesses and organisations will likely continue spending more to ensure they have strong cyber defences.
According to BetaShares, the global cybersecurity market could grow from $248 billion in 2023, to $345 billion by 2026 and $479 billion by 2030. This could imply good earnings growth for the businesses within this ETF over time.
Motley Fool contributor Tristan Harrison does not own units of the Betashares Global Cybersecurity ETF.
Temple & Webster Group Ltd
What it does: Temple & Webster is an online furniture and homewares retailer, boasting 240,000 products and a subscriber base of more than a million Aussies.
By Brooke Cooper: The Temple & Webster share price has been decimated recently amid rising interest rates and 2022's economic downturn. Trading at $5.19 at the market close on Monday, it's currently around 37% lower than it was this time last year.
But there might be a silver lining. I believe the downturn has created a buying opportunity, and I'm not alone.
After suffering through the COVID-19 pandemic, Temple & Webster management expects the company could return to double-digit growth this financial year.
It's also profitable and possesses a strong balance sheet – two qualities that could help it navigate any future volatility.
Finally, Goldman Sachs tips the Temple & Webster share price to rise 44.5% to $7.50 over the coming year.
Motley Fool contributor Brooke Cooper does not own shares of Temple & Webster Group Ltd.
Xero Limited
What it does: Xero provides cloud-based accounting software to tax professionals, businesses and individuals across several markets, including Australia.
By Sebastian Bowen: Like many ASX growth shares, the Xero share price was hit hard during 2022. This company started the year trading at $141.44 but ended the year a nasty 50.3% lower at $70.27.
However, I think this is a great time to consider picking up this quality tech business. Whilst Xero's share price has tumbled, its most important metrics continue to leap higher. Over FY2022, Xero reported a healthy 29% rise in revenues, 16% subscriber growth and a 28% increase in recurring revenue.
As governments around the world continue to push taxpayers towards digital reporting, I believe Xero shares are looking compelling today.
Motley Fool contributor Sebastian Bowen does not own shares of Xero Limited.
IGO Ltd
What it does: IGO is a diversified ASX 100 metals miner with four assets, all located in Western Australia. It owns the Nova nickel-copper-cobalt mine, the Forrestania nickel mine, and the Cosmos nickel mine. It is also a 51% partner with Tianqi Lithium Corporation in the Greenbushes Lithium Mine and has 100% ownership of a downstream processing refinery that produces battery-grade lithium hydroxide.
By Bronwyn Allen: I like IGO as a growth share because it combines two of my favourite long-term investing themes: Australian mining and global decarbonisation.
Australia is a commodities powerhouse with a stellar international reputation. Why not invest in one of our economy's strongest sectors?
I prefer diversified miners with mostly Australian-based assets, so IGO fits the bill for me. I also think lithium has a long runway for growth as the world decarbonises, and IGO is one of few ASX lithium miners already producing it.
Consider this: As reported in The Australian, Wealthi economist Peter Esho says there are 1.4 billion cars in the world running on fossil fuels compared to six or seven million electric cars (EVs). The number of EVs is expected to rise to at least 150 million by 2030. The fact that IGO is not only mining lithium but processing it into battery-grade hydroxide means it's getting two bites of the EV cherry.
Motley Fool contributor Bronwyn Allen does not own shares of IGO Ltd.
WiseTech Global Ltd
What it does: Global supply chains are complex and hard to manage. Any inefficiencies along a chain can result in large financial consequences, as was demonstrated during the pandemic. WiseTech provides all-encompassing, cloud-based logistics software that optimises the journey from origin to destination.
By Mitchell Lawler: WiseTech has delivered exceptional revenue growth over the years – growing from $102.8 million in 2016 to $632.2 million in 2022. I believe the expansion is far from over.
According to WiseTech, 10 of the top 25 global freight forwarders have either rolled out or are in the process of rolling out its software. To me, this suggests there is still plenty of room for the company's customer base to expand.
WiseTech currently holds an enviable balance sheet among ASX growth shares. At the end of June 2022, the company maintained $484.3 million in cash and zero debt. This positions it attractively if headwinds do materialise and also provides low-risk optionality for future growth.
While the current price-to-earnings (P/E) ratio of 90 times eararistonings is lofty by most standards, the scalability and free cash flow generation on offer make me think it might actually be a fair price to pay in the long run.
Motley Fool contributor Mitchell Lawler does not own shares of WiseTech Global Ltd.
Aristocrat Leisure Limited
What it does: Aristocrat Leisure is a leading gaming technology company. It owns a portfolio of world-class poker machines and mobile games. The company has also recently expanded into the rapidly growing real money gaming market.
By James Mickleboro: I believe Aristocrat is one of the highest quality growth shares on the Australian share market. You only need to look at its track record to see why. Over the last 10 years, the company's shares have generated an average total return of 27% per annum.
While past performance is no guarantee of future returns, I believe the company's positive growth outlook and attractive valuation mean its shares could provide investors with further strong returns over the next decade.
Citi is forecasting earnings per share growth of 25.5% in FY 2023. In light of this, it will come as no surprise to learn that the broker recently reiterated its buy rating and $41.20 price target on Aristocrat's shares. Aristocrat shares were trading at $33.25 at the close on Monday.
Motley Fool contributor James Mickleboro does not own shares of Aristocrat Leisure Limited.
