The Best ASX Growth Stocks to Buy in 2023

Regardless of economic status, country of origin, or political leanings, investors the world over share one thing in common – making money. The pathway to that goal varies in numerous ways, with time being a critical determinant of the path chosen. How long is an investor willing to wait to see a return on the investment?

Broadly speaking, stocks can be categorised as either growth stocks or value stocks. Value stocks are companies whose share price trails the value of the company. These are for the patient investor, with both the time and the will to wait for profit on their investment when the stock price begins to reflect the true value of the company.

Growth stocks are for the impatient, willing to take higher risks to get faster returns. While all stocks are expected to grow over time, true growth stocks are those whose revenues, earnings, and profit are expected to grow at a more rapid pace than other stocks in their business sector or within the wider market of the ASX.

Expectations are what make growth stocks riskier than value stocks. Investors flock to stocks with high price-to-earnings ratios – a generally accepted measure of growth stocks – firm in their belief lofty expectations will be realised. The decline in share price can be severe when expectations are not met or significantly delayed.

Right now, market participants seem fearful of delayed expectations due to economic uncertainties, leaving many formerly pricey growth stocks available at substantially reduced prices.

Here are some of the best available.

Kogan.com (ASX: KGN)

Kogan began to slide off its once market darling status following the massive increase in online sales during the COVID-19 pandemic. Australian online sales in 2021 reached $49 billion dollars, up from $38 billion in 2020. Kogan ranks in the lower half of the Top Ten Australian E-commerce sites.

Kogan was listed on the ASX in 2006 as the only company in Australia operating solely online. Kogan offers a dizzying array of goods such as electronics, furnishings, workplace needs and youth needs.

Investors quickly fell in love with Kogan shares, with the romance building until the peak of the pandemic.

Source: ASX 1/5/2023

Kogan and other online retailers assumed the sales boom would last as the impact of the pandemic subsided. When the retail outlets opened their doors, consumers tired of staying at home chose the brick-and-mortar outlets in large numbers. In addition, Kogan management went on a buying spree, increasing inventory to meet demand that did not come. Supply chain disruptions contributed to the problem as well, with the company filling warehouses again to meet demand that did not materialise.

The company’s financials were mixed, with management claiming the worst was over.

Kogan.com Financials

Source: ASX 1st May 2023

The company pays dividends but has other factors qualifying KGN as a growth stock. Kogan’s five-year P/E is 74.78. The price-to-forward earnings ratio – which includes forecasted earnings for the upcoming year – is 131.58.

The share price is rising year to date, up from $3.62 per share at the start of the year to $4.43 on 1st May. A positive trading update on the company’s Q3 business and the announcement of a share buyback boosted the stock price.

The 2021 eCommerce Industry Report from Australia Post found 19% of total retail trade comes from online sales. Kogan has room to further penetrate that market, although competition from Amazon Australia is formidable. Kogan can continue expanding through acquisition, as the company did with Mighty Ape. The company also operates numerous ancillary businesses in sectors such as insurance, travel, mobile, internet and others.

Temple and Webster Group (ASX: TPW)

The company offers furniture and homewares online, listing on the ASX in 2015 with the wind in its sails, following earning the title of Fastest Growing Internet Retailer in 2015 from Deloitte Tech.

Since listing, the share price movement was explosive at times before beginning a decline in mid-2021.

Source: ASX 1st May 2023

The company has a business model that gives it a competitive advantage. Temple and Webster offer more than 200,000 products available for direct shipment to customers from the manufacturer. Temple and Webster have no need for warehousing or costly inventory management. Temple also offers private-label brands from overseas suppliers.

The share price decline cannot be attributed to excess inventory, but supply chain issues impacting its suppliers could have played a role. The company is now a favourite of short sellers, who seem to believe

Temple cannot thrive in an environment of inflation, high-interest rates, property market downturns, and the return to in-store shopping.

Despite this, the company managed to grow revenue in each of the last four years while maintaining static profitability.

Temple and Webster Financials

Source: ASX 1st May 2023

The company’s five-year P/E is 80.8, while the forward P/E is 101.6. While investors may have a bearish view of the stock, global investment bank Goldman Sachs has a decidedly different view.

Goldman points to the company’s capacity to grow market share in a developing market, its barriers to entry, and its superior cost efficiencies.

Nanosonics (ASX: NAN)

Nanosonics is a high-tech medical device company that manufactures and distributes the Trophon ultrasound probe disinfector, a device capable of preventing infections stemming from repeated use of ultrasound probes (transducer) without bacteria-killing cleaning.

The Trophon is software controlled, with Nanosonics also generating revenue from the sale of consumables, decontaminants, and other accessories associated with the Trophon device.

Nanosonics operates in more than 30 countries grouped in the North American region, Europe and the Middle East, and the Asia Pacific area.

Infection prevention is a growing concern in the medical field, and the number of ultrasound transducers in use around the world that need disinfecting provides massive tailwinds for Nanosonics.

Over five years, the share price has appreciated from $2.56 per share to $5.54, as of 1st May 2023, an increase of 116%.

Source: ASX 1st May 2023

While the stock price was bruised by the COVID pandemic, the company’s financial performance managed to avoid posting a loss in any of the last four fiscal years.

Nanosonics Financial Performance

Source: ASX 1st May 2023

Nanosonics has a five-year P/E of 192.68, while the forward P/E is 156.09.

Allkem Limited (ASX: AKE)

Allkem is one of the world’s largest lithium miners, originating from the merger of Australia’s Galaxy Resources and Orocobre Limited.

Lithium is extracted from two sources – hard rock or evaporated brine. Brine production is centred in South America, where Orocobre, and now Allkem, has producing and development assets. Allkem now mines the other source, the hard rock assets from Galaxy Resources.

The Olaroz Lithium Facility in Argentina is the company’s flagship brine asset, while Mt Caitlin in Australia is a hard rock mining asset. The company also has the Sal da Vida brine project in development in Argentina and the James Bay project in Canada, a hard rock asset.

Over the past three years, the share price has been up from $1.56 per share to the current $12 per share as of 1st May 2023.

Source: ASX 1st May 2023

Allkem suffered from supply chain disruptions, lockdowns, and labour shortages, posting losses in both FY 2020 and FY 2021 but powered by the high price of lithium, the company came roaring back in FY 2022.

Allkem Financial Performance

Source: ASX 1st May 2023

The torrid pace continued into the Half Year 2023 Results, with the price of lithium driving record revenues and profits. Revenues were up 509%, while net profit came in 1,592% higher than realised in the Half Year 2022.The five-year P/E for Allkem is 83.28, while the forward P/E is 106.9.

Innovations in technology on the horizon are often hyped as changing the world as we know it and more. The disruption is likely to be a long time coming and may never arrive. A current example over the last decade is the hype about a revolutionary battery technology that will resign the Li-Ion batteries of today to obsolescence.

There is a new, more cost-effective, and efficient method of extracting lithium from brine called Direct Lithium Extraction in waiting. Goldman Sachs compares DLE to the onset of shale oil drilling and is now recommending investors buy the two ASX lithium stocks with the most to gain when and if DLE becomes a reality – Allkem and Rio Tinto (ASX: RIO).

Airtasker (ASX: ART)

A relative newcomer to the ASX, Airtasker listed in March of 2021 with the share price down 85% through 1st May of 2023.

Source: ASX 1st May 2023

The company’s share price lags far behind its performance to date. A few months after listing, Airtasker raised its IPO Prospectus guidance and announced that organic growth in UK and US markets was exceeding expectations, as well as the acquisition of a local services marketplace serving two US cities.

On 21st July 2021, the company announced it had exceeded its previously raised guidance. Airtasker’s latest financial results were for the Half Year 2023, showing a 57% revenue rise and a 29% reduction in cash burn.

Airtasker provides a local digital marketplace where those in need of a service and those who can provide services can come together. Unlike peer-to-peer lending companies and job seeker sites, the Airtasker platform is an open marketplace, which includes virtually any service imaginable, from consumer home repair needs to small business needs and much more. Other sites that act as the middle person in a transaction are curated in that the services offered are curated or limited in scope.

Summary

The factor that pushes some true growth stocks of today into the value stocks of tomorrow is the size of untapped market demand. Competition can saturate a market, as appears to have happened with the BNPL (buy now, pay later) market.

The total addressable market for local services is $52 billion dollars in Australia, $70 billion dollars in the UK, and $500 billion in the US.

Stocks that fail to grow are unlikely to fare well on the ASX over time. Stocks that grow revenues, earnings, and profit faster than other companies in their business sector and in the broader ASX as well are considered true growth stocks.

Growth stocks offer high rewards when their substantial growth expectations are met, with the risk of rapidly falling share price should the expectations not be met.