Buy Hold Sell: 3 of the ASX’s fastest-growing stocks (and 2 in the dog house)

With interest rates (currently) on pause, investors are once again looking for growth opportunities that can bolster their wallets and compound their cash faster than if they were to leave it in the bank. 

One way investors can gauge the probability of picking a winning stock is the growth rate in earnings per share (or EPS). 

For those not in the know, EPS is calculated by dividing a company's net profits by the number of shares a company has on issue. The growth in this number demonstrates how quickly a company can boost its profits per share. Typically, a growth rate of 20-25% or more is the sweet spot. 

So in this episode, Livewire's Ally Selby was joined by Elvest's Adrian Ezquerro and LSN Capital Partners' Nick Sladen for their analysis of three stocks with high EPS compound growth rates over the next two years. 

Plus, they also name two stocks that could be in the dog house from here. 

Note: This episode was filmed on Wednesday 23 August 2023. You can watch the video, listen to the podcast or read an edited transcript below.

Edited Transcript  

Ally Selby: Even despite lithium stocks being quite volatile this year, the stock is up 39%. Nick, over to you. Is it a buy, hold, or sell?

Helloworld Travel (ASX: HLO)

Ally Selby: Okay. Next up we have Helloworld Travel. This stock has had an exceptional 2023. The share price is already up 125%. Nick, staying with you, is it a buy, hold, or sell?

Ally Selby: Its earnings per share are expected to grow at a compound rate of 30% per annum over the next two years. Adrian, over to you. Is it a buy, hold, or sell?

HUB24 (ASX: HUB)

Adrian Ezquerro (BUY): HUB is also a buy for us. It's quickly becoming the platform of choice for advisers. It is rapidly taking market share from legacy incumbents. They've just delivered a wonderful result. One of the highlights was operating leverage. We think that will continue as a theme for HUB for quite a few years to come. And that's for a business that's already generated 58% compound earnings growth over the past five years. So, it's done an exceptional job. We acknowledge that it's trading on an elevated multiple, but in this instance, we think it's justified because the compound rate of earnings growth that's forecast is quite attractive. So, it's a buy for us.

Nick Sladen (BUY): It's a buy from our perspective - for all the reasons that Adrian alluded to. We think HUB is a really high return on invested capital business, so that makes it extremely attractive because it obviously can self-fund its growth and development, which it's done over many years. It can then return capital to shareholders in the form of dividends and share buybacks. So, it's a buy from us and we think it's got a terrific outlook for the next 12 to 18 months.

SELL: Steadfast Group (ASX: SDF)

Nick Sladen: We're a seller of Steadfast. We think the business has had a tremendous run over multiple years, but ultimately, insurance and insurance broking is a cycle, and we think that cycle will turn at some point. They're on 22 times earnings. We think that valuation is probably broadly full for that business and the upside opportunity that exists. The CEO and founder, Robert Kelly, has done a great job building that business and growing it. He's probably closer to the end, and we see succession as a risk going forward. So, we're probably comfortable exiting that and allocating our capital elsewhere where we see more upside.

SELL: Temple & Webster Group (ASX: TPW)

Adrian Ezquerro: Our sell today is Temple & Webster. It's an online-only retailer of furniture and homewares. They operate a drop-ship model, which is both low-margin and quite competitive. For this reason, management is investing aggressively to build brand value with a focus on top-line growth. And as a result, we don't see material profits being delivered in the years to come. I think for context, Temple & Webster have just delivered a profit of $8 million, $3 million of which was from interest income, and that speaks to a really strong balance sheet. So, there's no solvency risk, but it trades on about 100 times forecast earnings. For context, Nick Scali's got a slightly larger market cap. It just delivered a profit of $100 million. So Temple & Webster is just too expensive for us. We think it's a sell.

Which stock do you have in the dog house? 

We've just come off the back of a very eventful reporting season. There were highs, lows, and everything in between. So, which stock do you think will face mounting challenges over the financial year ahead? Let us know your "dog house" stocks in the comment section below.