2 ASX growth shares I rate as buys for their big potential

These companies are seeing pleasing demand for their technology offerings.

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ASX growth shares that have good operating profit margins and are delivering strong revenue growth can lead to good shareholder returns over time.

Businesses that are smaller and earlier on in their growth journey can be very compelling investments.

Some of the biggest technology companies on the ASX and around the world were once unprofitable, but business growth led to scale benefits for profitability.

With that in mind, I'm going to talk about two ASX growth shares that I think have plenty of growth possibilities.

Airtasker Ltd (ASX: ART)

Airtasker describes itself as Australia's leading online marketplace for local services, connecting people and businesses who need work done with people who want to work.

It had a good 2023 financial year, with revenue rising 40% to $44.2 million and gross marketplace volume (GMV) increasing 34% to $253.5 million. Group earnings before interest, tax, depreciation and amortisation (EBITDA) improved 53.1% to a loss of $8 million, while the net cash outflow improved by 24%.

The ASX growth share is expected to be positive free cash flow in FY24, which I believe would be very helpful for the sustainability of the business, as well as possibly improving investor confidence.

Airtasker achieved a gross profit margin of more than 94% in FY23, so any additional revenue should be beneficial for future EBITDA and other profitability levels.

I like the company's international growth potential. The United Kingdom and United States markets, where it has very small operations, are much bigger than Australia and can enable it to grow much bigger than it is today. In FY23, UK GMV grew by 35% to £3.7 million, and posted tasks in the US went up 158% to 64,000.

In five years, I think Airtasker can become a lot bigger, particularly if its revenue keeps rising by double-digits and it becomes (and stays) free cash flow positive.

Volpara Health Technologies Ltd (ASX: VHT)

This company provides technology in the healthcare space for breast screening, analysis and practice operations.

Volpara offers an important service that provides patients and healthcare professionals with more (and new) tools to assess risk. This is enabling the business to grow its average revenue per user (ARPU).

The ASX growth share continues to see impressive strong growth. In the FY24 first quarter, cash receipts increased by 27% to more than NZ$11 million. Volpara also advised it was "heading towards being net operating cash flow positive in FY24", which is ahead of previous guidance.

Volpara's profitability is rapidly improving. In FY23, its operating expenses increased by only 0.9% in constant currency.

The company's gross profit margin improved by 122 basis points (1.22%) to 92.5% in FY23, meaning that a lot of new revenue turns into gross profit. This can then be used for spending on more growth or increasing other profit levels. The net loss improved 40% to NZ$9.8 million in FY23.

In the future, the company anticipates growth from geographic expansion, ARPU improvements, growth with software beyond its core offering (including lung screening), more healthcare initiatives by governments, and increasing usage of artificial intelligence (AI).

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 positions in and has recommended Volpara Health Technologies. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Airtasker. The Motley Fool Australia has positions in and has recommended Volpara Health Technologies. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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