To take advantage of the power of compounding, there’s nothing quite like a business that is growing its earnings at double-digit rates, year after year.
Owning just a couple of high-quality businesses exhibiting strong ongoing earnings growth can make a big difference to your portfolio, if held for the long term.
If you’re looking for strong earnings growth, here are three companies who are regularly delivering for shareholders.
REA Group Limited (ASX: REA)
REA Group operates residential and commercial property websites, such as realestate.com.au and realcommercial.com.au. It also has interests in many overseas based property websites.
Over the last 10 years, earnings have grown at a rate of 29% per annum, leading to a total shareholder return of 38.9% per annum.
Unfortunately, REA is trading at around 43 times earnings, so it’s hardly a bargain. But it could be worth paying up for, with earnings forecast (by Morningstar) to grow by 19% per annum for the next 2 years.
If the company can replicate its local success across the globe, it could keep growing strongly for many years to come.
Bapcor Ltd (ASX: BAP)
Bapcor (formerly known as Burson Auto Parts) is an automotive parts distributor. The company supplies replacement parts and consumables used for servicing and repairing vehicles, while also owning retail businesses such as Autobarn and servicing centres such as Midas.
Having only been listed for about 4 years, it has a short but impressive history. After an acquisition in 2017, its underlying profit grew by 48% per share, with Bapcor expecting around 30% profit growth for 2018. The company is continuing to grow its store count and expects to have its first five Asian stores open this year.
The total shareholder return over the last 3 years has been 27.4% per annum. Bapcor shares are trading at around 29 times earnings.
CSL Limited (ASX: CSL)
The biotech giant has to be one of the highest quality companies on the ASX.
CSL continues to create and sell products and treatments that are making a difference, for society and for shareholders, and the company doesn’t look to be slowing down anytime soon. In fact, the company’s earnings growth is accelerating.
Over the last 5 years, earnings grew by around 15% per annum, but over the next 2 years, earnings are forecast to grow by 24% per annum.
Shares are currently trading for around 40 times earnings.
As is usually the case, fast-growing companies don’t come cheap. Out of these three shares, I think Bapcor represents the best value at the moment. Buying shares in companies with strong earnings growth, when they’re attractively priced, is one of the best ways for building wealth over the long term.
Motley Fool contributor Dave Gow owns shares of Bapcor and REA Group Limited. The Motley Fool Australia owns shares of and has recommended Bapcor. The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.