Buy Hold Sell: 5 companies with powerful earnings potential

There are myriad benefits for companies with powerful earnings potential.

Consistent and growing earnings allow companies to raise capital more readily, reinvest in growth, expand into new markets, and provide a cushion when times get tough. 

Perhaps most importantly, for shareholders at least, is that growing earnings lead to higher valuations, with investors willing to pay a premium for such companies.

So, which ASX companies have such earnings potential, and are they currently priced correctly?

To answer those questions, Livewire's Anna Dadic is joined by Will Granger from Airlie Funds Management and Marc Whittaker from IML.

In this episode, they analyse three ASX companies exhibiting strong earnings that are set to grow in the future. For good measure, they each outline the bull case on one company they believe has significant earnings upside. 

Please note this episode was filmed on 7 May 2025.

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Edited Transcript

Anna Dadic: Hello and welcome to Livewire's Buy Hold Sell. I'm Anna Dadic. In this episode, we're putting the magnifying glass over three ASX companies in the small and mid-cap space with big growth potential. I’ve also asked our guests to each share one of their own stock picks. I'm joined by Will Granger from Early Funds Management and Marc Whittaker from IML.

Life360 (ASX: 360)

First up, let’s get straight into it. We’re talking about Life360, the family safety and location-sharing business that’s really captured the market’s attention. Marc, I’ll come to you first — is it a buy, hold, or sell?

Marc Whittaker (SELL): It's a sell for me, Anna. It’s a well-regarded stock, and the business model makes sense, but you're paying 60x earnings, and the growth expectations are high. A hiccup here or there could cause the valuation to come down sharply. So at these levels, it’s a sell.

Anna Dadic: Will, this one rose to market darling status in 2024, though it’s pulled back a bit since then. How about you — buy, hold, or sell?

Will Granger (SELL): It’s a sell for us too. What they’ve built is impressive, especially their presence in the US and internationally, and there may be network effects at play. But the business model is still unproven. It’s not yet profitable on a statutory basis, even after raising prices significantly. To get comfortable with the valuation, you really need a strong view on their long-term margins — and we’re not there yet.

ReadyTech Holdings (ASX: RDY) 

Anna Dadic: Okay, that’s a double sell. Let’s move on to ReadyTech, a provider of mission-critical SaaS for education, employment services, workforce management, government, and justice sectors. Will, staying with you — buy, hold, or sell?

Will Granger (HOLD): It’s a hold for us. We generally like this type of software business — very sticky with low customer churn. But the balance sheet is a bit stretched, and it’s been quite acquisitive. While you're compensated somewhat for that in the valuation, it’s still just a hold.

Anna Dadic: Marc?

Marc Whittaker (BUY): It’s a definite buy for us. It’s an enterprise SaaS business with around 90% recurring revenue. It’s founder-led — Mark, the CEO, has been there since day one and has done a good job. The main issue recently has been revenue growth not quite hitting that 10–15% compound target. But we think that improves as customers, particularly in local government, begin to recontract and spend again. The company is trading on just 10 or 11x earnings for next year. For a business with high recurring revenue, good margins, and a return to double-digit growth, we think that’s a steal.

Breville Group (ASX: BRG) 

Anna Dadic: Next up, we’re discussing Breville Group. Marc, you’re first — buy, hold, or sell?

Marc Whittaker (SELL): It’s a sell — purely on valuation grounds. It’s a good business with good products, but I question the strength of the moat. They have to reinvest a large share of cash flow into product development every year, and competitors are increasingly active in both the food prep and coffee segments — names like Shark Ninja in the US and others globally. The stock is priced for perfection at around 30x earnings, and I’m not convinced they can sustain that performance in the face of these emerging threats.

Anna Dadic: Okay, a sell from Marc. Will, how about you?

Will Granger (HOLD): It’s a hold for us. Yes, it’s a bit expensive, but it’s also a very high-quality business with strong brand equity. While competition exists, Breville has a solid track record of innovation. That said, we think there’s a better way to get exposure — through Premier Investments, which owns 25% of Breville. If you apply reasonable valuations to Premier’s other assets, you’re getting a much cheaper entry point to Breville. That’s how we’d play it.

Guest picks

PWR Holdings (ASX: PWH) 

Anna Dadic: Now I’ve asked both of you to bring a stock of your own choosing — something you believe has strong earnings potential. Will, let’s start with you.

Will Granger: The one that comes to mind is PWR Holdings. It’s had a tough year with sluggish revenue growth, margin compression, and high CapEx, but that presents the opportunity. The long-term investment thesis is still intact. They supply the highest quality radiators and cooling systems in motorsport — including all the Formula One teams. We think there's a big opportunity to leverage that IP into adjacent sectors like aerospace and defence, where they’ve already made strong progress. So for us, it’s a buy.

Tabcorp (ASX: TAH)

Anna Dadic: Marc, what’s your pick?

Marc Whittaker: I’ve gone with Tabcorp. We like it for two reasons. First, it’s a set of wagering assets — retail, digital, and media — but they’ve struggled historically to bring those assets together effectively. Now, with Gillon McLachlan as CEO — formerly head of the AFL — there’s been a real cultural and strategic reset. He’s brought in greater accountability and performance standards, and it’s starting to show. Their trading update today was quite encouraging. Wagering is also a very resilient category — even in tough times, Aussies still like to have a punt. We like the industry, we like the management change, and we like the new strategic direction. We think Tabcorp is poised to do well.

Anna Dadic: Thank you both for your stock picks. That’s all we’ve got time for today. If you enjoyed this episode of Buy Hold Sell, give it a like and don’t forget to subscribe to our YouTube channel — we drop new content every week.