In this article we discuss: - What a growth stock - The Afterpay growth story - Benefits of investing in growth stocks - 10 ASX growth stocks to watch in 2023
What is a growth stock?
While there’s no universal definition of a growth stock, generally speaking growth stocks are companies which are growing their top-line revenue above the market average, often in double-digits.
Beyond rapid revenue growth, growth stocks tend to exhibit a few other characteristics:
- Often operates in the technology sector
- High user growth metrics
- High revenue growth with low earnings or net losses
- Growing costs – often associated with expansion expense or stock based compensation (talent costs)
- A high trading multiple – including a high price to sales or price to earnings multiple
The Afterpay growth story
Afterpay provides a model for identifying and understanding growth stocks – both in Australia and globally.
After selling shares for just A$1 at its IPO in May 2016, Afterpay’s stock would run as high as A$160.5 by February 2021, as part of a boom in buy now pay later stocks. That 15,950% share price run was no coincidence – it was the market rewarding growth, growth, and more growth.
The following table looks at Afterpay’s 2015 operational results, as reported in its IPO prospectus and compares them to the company’s 2021 results – the last Afterpay would make as a standalone public company.
| Metric | 2015 results | 2021 results |
| Underlying Merchant Sales | A$600,000 | A$21,100,000,000 |
| Revenue | A$24,000 | A$924,700,000 |
| EBITDA | -A$39,000 | A$38,700,000 |
| Net loss | A$39,000 | A$159,400,000 |
| Active merchants | 9 | 98,200 |
| Active customers | <4,000 | 16,200,000 |
As you can see from those metrics – Afterpay experienced stratospheric top-line revenue growth, user & merchant growth, and even earnings (EBITDA) growth between 2015 to 2021.
For growth investors this was the perfect example of ‘hockey stick’ growth – and is well reflected in the dramatic share price run up before Afterpay was acquired by Block (formerly Square) in 2022.
However, as many early stage growth companies know all too well – Afterpay struggled to meaningfully translate that growth into earnings – booking a loss of A$159.4 million in 2021 even after generating more than $900 million in revenue.
With a sharp selloff in high growth stocks over the last 12-months, it would have been interesting to see how Afterpay would have fared should it have remained a standalone business.
Why invest in growth stocks
Growth stocks have long proven attractive to investors due to the potential for outsized ‘capital growth’ or ‘capital gains’ through share price increases, as well as the potential for modest dividends.
Again – the attractiveness of growth investing is no more clear than the Afterpay example. At its peak in 2021, every A$100 invested in Afterpay at IPO would have been worth $16,000!
Although It’s important to note that Afterpay is an outlier – the prospect of multiplying your money 16 times over explains why investors continue to hunt for Afterpays. There is no shortage of investment services claiming to have found the ‘next Afterpay.’
Beyond capital growth, growth stocks can pay dividends – and some in Australia do – but this is typically not the norm. This is because many growth companies opt to reinvest their earnings into the business – to grow it further.
Read more: Top 10 ASX Dividend Stocks to Watch in 2023
Amazon is probably the most well known example of a company aggressively reinvesting cash and profits to grow its business. In his 1997 shareholder letter, Bezos specifically called this out, saying:
‘We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions.’
Top 10 ASX growth stocks to watch in 2023
The table below highlights 10 ASX growth stocks to put on your watch list in 2023 and beyond. The below list is made up of the companies in the iShares S&P/ASX Small Ordinaries ETF, sorted from highest weighting to lowest, and includes only companies that have achieved double-digit (+10%) revenue growth in the latest reporting period.
| Company | Ticker | Share price | Market cap |
| Technology One | TNE | A$14.93 | A$4.85 billion |
| Seven Group | SVW | A$24.67 | A$8.96 billion |
| Promedius | PME | A$61.76 | A$6.45 billion |
| Perseus Mining | PRU | A$2.11 | A$2.89 billion |
| Flight Centre | FLT | A$19.43 | A$4.15 billion |
| Sandfire | SFR | A$5.98 | A$2.73 billion |
| Premier Investments | PMV | A$27.94 | A$4.45 billion |
| National Storage Reit | NSR | A$2.47 | A$2.98 billion |
| Webjet | WEB | A$7.00 | A$2.68 billion |
| AUB Group | AUB | A$27.36 | A$2.78 billion |
Investing involves risk, including the risk of losing your invested amount. Any information that may be in this communication is general in nature only and is current at the time of writing. Syfe does not make recommendations of any kind or provide personal advice that take into account your objectives, financial situations or needs. You should therefore consider the appropriateness of the information in light of your own objectives, financial situation or needs before acting on such information, and/or speak to your financial or tax adviser for personal advice. Past performance figures are based on information provided by third parties and may not be accurate. Any references to past performance and future indications are not, and should not be taken as, a reliable indicator of future results. Syfe does not intend for any statement made here to relate to the acquisition or disposal of any shares in the companies or other financial products named here. Syfe makes no representation and assumes no liability as to the accuracy or completeness of the content of this communication
