How to scan for ASX 200 growth stocks (plus 24 companies that made the cut)

• 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.

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.