TOL - 1st Sep, 2023
How to scan for ASX 200 growth stocks (plus 24 companies that made the cut)
We introduce a set of rules to target companies that have a track record of delivering on ‘growth’.
Growth has become a bit of an investing buzzword. But what does it actually mean and what kind of parameters can we set to help us better filter for consistently fast-growing companies?
In the second installment of our Stock Screening Series, we’ll introduce a set of rules to target companies that have a track record of delivering on ‘growth’.
To find out more about Factor Screening – What it is, which factors to use, and the overall process – Read the first part of the series here.
The Factors
#1: Return on equity
- Rule: Greater than 10%
- Why: Return on equity measures how much profit a company generates with the money that its shareholders have invested. This serves as a quality filter to ensure the company is using its money efficiently to generate profits
- Rule: Greater than 5%
- Why: Proof that the business has grown revenues over the past 12 months
#3: 1-year forward (expected) revenue growth (FY24)
- Rule: Greater than 5%
- Why: Analysts expect that the company will grow its revenues over the coming year as well
- Combined, factors 2 and 3 ensure consistent revenue growth over an extended time period
#4: EPS growth greater than revenue growth
- Rule: True
- Why: This ensures the company is efficiently growing its bottom line. This eliminates companies that are aggressively growing their top lines with poor margins.
The Outcome
By applying the above parameters, we've narrowed the ASX 200 to just 24 companies.
We now have a tangible definition of 'growth' but we can also tweak the current set of rules or introduce additional factors to broaden or narrow the search results.
| Ticker | Name | Dividend Yield | 1-Year | Target price | Upside | Close |
| ALL | Aristocrat | 1.38% | 11.0% | $ 44.28 | 10.81% | 39.96 |
| ALU | Altium | 1.06% | 29.1% | $ 41.62 | -13.02% | 47.85 |
| BXB | Brambles | 2.47% | 11.1% | $ 15.33 | 9.03% | 14.06 |
| CAR | Carsales | 1.90% | 24.8% | $ 27.65 | -0.18% | 27.7 |
| CPU | Computershare | 2.85% | 1.3% | $ 27.21 | 10.30% | 24.67 |
| CTD | Corporate Travel | 0.58% | -1.4% | $ 22.30 | 19.57% | 18.65 |
| GOR | Gold Road Resources | 0.91% | 21.1% | $ 1.85 | 13.15% | 1.635 |
| HUB | Hub24 | 0.85% | 23.0% | $ 33.68 | 7.64% | 31.29 |
| IEL | IDP Education | 1.33% | -9.8% | $ 27.89 | 7.35% | 25.98 |
| ING | Inghams | 1.44% | 29.5% | $ 3.71 | 6.92% | 3.47 |
| KAR | Karoon Energy | 0.00% | 9.2% | $ 2.92 | 29.20% | 2.26 |
| LOV | Lovisa | 3.53% | 20.6% | $ 24.02 | 6.47% | 22.56 |
| NAN | Nanosonics | 0.00% | -3.0% | $ 4.70 | 11.90% | 4.2 |
| NHC | New Hope Corp | 10.54% | 9.6% | $ 6.28 | 14.60% | 5.48 |
| NWL | Netwealth | 1.55% | 10.5% | $ 14.16 | -7.03% | 15.23 |
| PLS | Pilbara Minerals | 2.15% | 37.8% | $ 5.27 | 12.13% | 4.7 |
| PME | Pro Medicus | 0.34% | 37.4% | $ 70.31 | -3.05% | 72.52 |
| PRU | Perseus Mining | 1.53% | 5.7% | $ 2.39 | 35.80% | 1.76 |
| QUB | Qube | 2.40% | 2.7% | $ 3.44 | 13.91% | 3.02 |
| S32 | South32 | 7.60% | -18.5% | $ 4.59 | 31.90% | 3.48 |
| SUL | Super Retail Group | 6.00% | 21.2% | $ 13.10 | 3.48% | 12.66 |
| SVW | Seven Group | 1.68% | 45.5% | $ 30.24 | 11.67% | 27.08 |
| TNE | Technology One | 1.02% | 24.3% | $ 15.82 | 5.61% | 14.98 |
| VNT | Ventia Services | 5.77% | -3.6% | $ 3.09 | 16.17% | 2.66 |
Data based on Friday, 25 August close. 'Target price' reflects an aggregate of all target prices within Refinitiv’s database
Key Stats
In terms of sector breakdown:
- Industrials: 5
- Discretionary: 5
- Materials: 4
- Energy: 2
- Financials: 2
- Healthcare: 2
- Technology: 2
- Communication Services: 1
- Utilities, Real Estate, Staples: 0
Dividends: Most of these companies pay a dividend and the average across the 24 companies is 2.45% on a trailing basis.
Performance: The average stock is up 14.1% in the past twelve months. Only five or 20% of the stocks have a negative twelve month performance, down an average 8.2%.
Analyst targets: The average stock has an upside of 10.6% versus consensus analyst target prices.
The Bottom Line
The four criteria have helped narrow down the ASX 200 to just 24 stocks that have demonstrated:
- The ability to efficiently generate profits (via an ROE of more than 10%)
- Expected to grow revenues in FY24
- Earnings growth outpaces revenue growth
This may not necessarily be a picture-perfect definition of growth (or your definition of growth) but narrows the investable universe to a more digestible list of companies.
Moving forward, we'll look to run the same criteria again (in a couple of months) to see which companies make the cut, which ones fell out and how have they performed.
We'll also engage some growth-focused fund managers to share their insights on some of the companies that make the cut.
And don't forget, we'll be setting up an income screen in the coming weeks as well.
This article was first published for Market Index on Thursday 31 August 2023.
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Kerry is a Content Strategist at Market Index. He writes the daily Morning Wrap and Weekend Newsletter. Kerry is passionate about trading and the catalysts that influence the market. His content focuses on highlighting the key data and insights that matter most to investors.
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Kerry is a Content Strategist at Market Index. He writes the daily Morning Wrap and Weekend Newsletter. Kerry is passionate about trading and the catalysts that influence the market. His content focuses on highlighting the key data and insights...
Expertise
Kerry is a Content Strategist at Market Index. He writes the daily Morning Wrap and Weekend Newsletter. Kerry is passionate about trading and the catalysts that influence the market. His content focuses on highlighting the key data and insights...
Expertise
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