If I were in my 20s, I'd want to buy ASX shares with lots of growth potential which could become much bigger businesses in the years ahead.
The longer we have to compound our money, the bigger the end result can be.
Maximising passive income might not be a high priority for most 20-year-olds, so dividend payments may not be essential.
If I were thinking about which ASX shares could deliver a lot of capital growth over the next five to ten years, the below three are right at the top of my list.
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Lovisa Holdings Ltd (ASX: LOV)
Lovisa is a leading affordable jewellery retailer.
The business has a global store network, with more than 20 stores at the end of the FY24 first-half result in the following countries: Australia (175 stores), New Zealand (27), Malaysia (43), South Africa (77), the UK (47), France (80), Germany (51) and the USA (207).
The ASX share earns a good gross profit margin on its products (80.7%) and the average store makes a good amount of profit, so expanding the network is a great move. Over the 12 months to the end of the HY24 result, it added 139 stores – an increase of 19.4%.
I believe the company has the potential to add hundreds of stores across its current markets, particularly in the US and China because of how big those markets are. Lovisa has only recently entered a number of compelling markets including Mexico, Canada, Italy, Poland, Vietnam and Hong Kong.
The forecast on Commsec suggests Lovisa is expected to grow profit by 55% between FY24 to FY26. The prediction suggests it's valued at 27x FY26's estimated earnings.
Airtasker Ltd (ASX: ART)
Airtasker provides a platform that enables people who need work to connect with people/businesses willing to do that work. There is a huge list of potential work categories including removalists, photography, furniture assembly, various handyman tasks, gardening, accounting and bookkeeping, delivery and so on.
The business has grown enough to reach profitable status, which is a good sign for an ASX tech share. In the FY24 first-half result, it achieved positive free cash flow of $0.1 million, an improvement of $4.7 million.
The overall company is growing at a good pace – HY24 Airtasker marketplace revenue rose 10.3% to $18.9 million.
It has built a good presence in Australia and now it wants to do the same in the UK. It's starting from a small base, but in HY24 the UK posted tasks rose by 30% after the UK television campaign launch. Airtasker said this rapid growth in marketplace activity was achieved during the 'low season' in the UK and is expected to accelerate in the second half during the warmer months in the northern hemisphere.
Airtasker has a gross profit margin of over 90%, so additional revenue should be very helpful for profit.
Frontier Digital Ventures Ltd (ASX: FDV)
Fronter Digital Ventures invests in classifieds website businesses in emerging markets (such as South America, Asia and the Middle East).
These sorts of businesses are very scalable – once the digital infrastructure has been built, additional volume can be very beneficial for profit margins.
The ASX share can benefit from the tailwind of rising digital adoption in those emerging markets. More digital users could mean stronger profits in the coming years. I think there's a long-term growth story here.
It's starting to make profit, which is a good sign for the sustainability of its balance sheet and gives me optimism that future revenue growth could be very beneficial. In 2023, it made statutory earnings before interest, tax, depreciation and amortisation (EBITDA) of $3.7 million (up $8.3 million) and in the second half of 2023, it made $1.3 million of net profit after tax (NPAT).
