If you have $2,000 to invest then I think the two ASX shares in this article are the smartest ones to buy:
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Share 1: Pushpay Holdings Ltd (ASX: PPH)
Not too long ago I wrote an article where I said that I thought the Pushpay share price had run too hard. Since 13 July 2020 the Pushpay share price has dropped 16%. I think it could be back into the buy zone.
Pushpay is an electronic donation payment business. Its current focus is to facilitate digital giving to large and medium sized churches in the US. Pushpay thinks this is a large opportunity. It thinks it can reach annual revenue of US$1 billion if it can reach a 50% market share of this sector.
In these COVID-19 conditions there is obviously more social distancing, so digital giving may be preferred to cash donations by both the church and the person donating.
The ASX share delivered a strong result in FY20 with revenue growth of 32% and earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) growth of 1,506% to US$25.1 million.
In FY21 Pushpay is expecting to at least double its EBITDAF with further expansion of profit margins. In FY20 the gross margin grew by five percentage points from 60% to 65%. Further revenue growth should see the business become even more profitable.
The recent acquisition of Church Community Builder brings exciting cost synergy and cross-selling potential.
At the current Pushpay share price it's trading at just 34x FY21's estimated earnings. I think it could be a very smart long-term buy today.
Share 2: Bubs Australia Ltd (ASX: BUB)
I think Bubs is one of the most exciting shares on the ASX due to its international growth plans and improving margins. It has a range of products, with a focus on goat milk.
If a business can successfully expand into Asia or other populous regions, it opens up huge addressable markets for that company.
Bubs is doing a great job of expanding its distribution reach with agreements with international retailers like Alibaba as well as local ones such as Chemist Warehouse, Coles Group Limited (ASX: COL), Woolworths Group Ltd (ASX: WOW) and Baby Bunting Group Ltd (ASX: BBN).
The increased distribution network is leading to exciting revenue growth. In the FY20 third quarter Bubs generated quarterly revenue of $19.7 million, this was growth of 67% compared to the prior corresponding period and 36% on the previous quarter.
There were a few key areas of growth that delivered that impressive growth for the ASX share. Bubs infant formula revenue grew 137%. Chinese revenue increased 104% and 'other market' revenue rose almost 20 times – this represented 12% of gross sales and included significant growth into Vietnam. I think the strong growth can continue for at least the medium-term as the Bubs distribution network and brand awareness continues to grow internationally.
As the ASX share gets bigger its gross profit margin gets better. Indeed, its gross margin increased in each of the December 2018, June 2019 and December 2019 results. The December 2019 gross margin was 24% and the Bubs infant formula gross margin was 41%. To me, this says the business can continue to become even more profitable as it grows bigger and more of its sales are infant formula related.
In the update about the quarter to 31 March 2020, the company said that it was cashflow positive. That means it's now not burning cash in its day to day operations. That's an important step for a rapidly growing business.
Foolish takeaway
Perhaps the sale of Pushpay shares by the largest shareholder group unnerved some investors. But I think Pushpay still has a great future. The lower share price makes Pushpay a more attractive buy to me than earlier in July. Bubs is also a great ASX growth share candidate. I'd be happy to buy both of them for my portfolio at the current prices.
