Buy Hold Sell: Five overlooked growth stocks

This time he's asking the big questions, including what the key risks are for ASX growth companies today, and how professionals manage downside when the inevitable arrives. 

Answering those questions are Ellerston’s James Barker and Ausbil’s Andrew Peros. Tom also quizzes them on past growth investments that exceeded expectations, and which early-stage indicators they pay most attention to. 

And that's all before we get to the traditional Buy Hold Sell fare, running the ruler over five overlooked growth stocks. Are they misunderstood, or has the market ditched them for a reason?

If you love growth investing, don't miss this bumper episode. 

This episode was filmed 21 May, 2025

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Edited Transcript

Tom Piotrowski: Thanks for joining us for Livewire's Buy Hold Sell series. Today, we are focusing on growth stocks. And joining me in the conversation is Andrew Peros from Ausbil and James Barker from Ellerston. Andrew, this is, at face value, a very simple question but it really defines, I suppose, simple things like keeping your job. How do you manage risk in your portfolio?

Managing risk

Andrew Peros: Well, risks are everywhere and I often think more about risks than returns. But I think one of the key risks for growth stocks on the ASX is the crowding within the high-quality names and the herd mentality-

Tom Piotrowski: It gets a bit hyped up and can get carried away-

Andrew Peros: Absolutely. Yep. You see that reflected in a much higher multiple than what you would typically expect when you compare it to global peers. So I think if something goes wrong, you're going to get a rush for the exits. So I think that's probably the key risk. And in terms of how I manage it, the first thing that I would typically do is I think about the macro a little bit. Use that as a tool to direct my research efforts. What's the FX doing? What's our view? What's our view on rates? And just use that as a tool, as I said, to manage risks. But there are other tools at our disposal in terms of limiting the downside. If I'm worried about a drawdown or a slowdown in global economic growth, I can increase the number of stocks in the portfolio to spread the risk. I can creep up the market cap spectrum, hide in some of those larger, more liquid names. And then, think about diversification into some of those more defensive sectors, whether it's telcos or infrastructure. So that's of how I think about things.

Tom Piotrowski: James, your own personal mental discipline is very important when it comes to managing risk in a portfolio. How do you do that? Particularly given the volatility that we've seen over the course of the last couple of months.

James Barker: So we're very much bottom-up investors and we typically like to hold a stock over a three to five-year journey. But how we manage the risk in between that is hold the stock at different weights depending on what the upcoming catalysts for the name are and the risks associated with points in time. So if you think about some share prices, yes, sometimes they do factor in world domination and the market can get overhyped in that regard. What we typically like to do is look over a three to five-year journey, "Where do we think terminal market share lies? Where do we think revenue or profitability should go to?" And then, we work backwards and look at, "What are the near-term catalysts to either prove up or disprove our thesis?"

In terms of balance sheet, we do a lot of work around balance sheets as well. That helps mitigate some of the downside risks. So we do typically like net cash businesses. We do a lot of work around the working capital. If revenue is slowing, you get a blow out on working capital and does the balance sheet look stretched at that point? So some of the analysts, they're really good at forecasting a profit and loss statement but less so cashflow. So we do a lot of work around, "What can go wrong from a balance sheet perspective?" And we typically run net cash businesses in a net cash portfolio overall.

The investment process

Tom Piotrowski: Being bottom-up in terms of the process, what's the first step? Is it sometimes actually just paying a visit to your organisation and having a coffee?

James Barker: Sure. So we'll typically be on the road. Ellerston's got quite a large team. We've got 26 investment professionals across the business and 6 in our team at the moment. So what we typically like to do is spend a third of our time on the road meeting management teams and going back over old ground. So a stock that you haven't looked at in a little while that looks interesting. I think the starting point for most of our investments is why does the business exist? So small caps, they'd need a reason to be there. "Are they providing a better product or a better service? Where are they taking market share from? Is it a growing market?" And that's the first filter that we look through.

Lessons learned

Tom Piotrowski: Andrew, when it comes to lessons learned, often, the discussion turns around, "What was your biggest loss? What did you learn from it?" But sometimes it's important to understand how to manage a stock that has exceeded your expectations. How many times have you been challenged with that situation?

Andrew Peros: Well, your investment case is challenged every day, Tom. But I guess a stock that's exceeded expectations is a stock called Life360 (ASX: 360). It's a stock that we actually passed on the IPO back in 2019. It didn't meet our strict investment criteria from a process perspective but we stayed in touch with the company. We continued to meet the company through time. And then, it was in 2021 when we finally took the initiative to take it off the bench and initiate a position.

It is quite a polarising stock. There were still many doubters. I know there were people out there calling it a fraud. Suggesting that it would never be cashflow breakeven and that the Apple AirTag was certainly going to encroach on their territory. From our perspective, that was all noise and it's very important to separate the signal from the noise. So I guess the real lesson is you’ve got to do your own research. You've got to do the fundamental, bottom-up work. Know your company better than anyone else in the market. You really need to understand how a company turns a dollar of revenue into a profit and how that filters through the P&L, how it translates into cashflow, and then flows through the balance sheet. That is critical.

And if you can't understand that, then you're certainly not going to be able to pick the companies that are in an upgrade mode and avoid those in the downgrade mode. So that would be my key lesson. It's been quite a successful story at Ausbil. It started off in the micro-cap fund, graduated to become a successful small cap. And now, is held more widely across multiple Ausbil portfolios.

Tom Piotrowski: James, when it comes to exceeding expectations, there is nothing more cruelling than when you've exited a stock too early and you see it go on to succeed over decades. You're too young to have that experience. But have you been at risk of getting out too early on an organisation?

James Barker: So a good example, and we have owned the stock at many points in its life, is Hub24 (ASX: HUB). So this is a stock with multiple structural tailwinds really that's taking significant flow from other platforms out there. There's a big shift towards independence and the like. So I think this is a good example of a stock that does need some consolidation over periods of time.

So what you saw in 2020 and 2021 is the stock went from $10 up to $30. It was a market darling at the time. At the end of 2021, people got worried about the interest rate cycle and the outlook for equities and flows on the back of that. So what you saw over that period of time, over '22 and '23, was the share price was relatively flat. But because the business still had all these structural growth tailwinds underpinning it, you actually saw the P multiple halve over that time and it became much more reasonable valuation at that point. So it's one of those growth stocks that you do see a period of consolidation, but it doesn't mean that anything's changed in the overall narrative. It's really just the expectation and valuation management.

Key indicators

Tom Piotrowski: James, one thing that's critical is getting those early-stage indicators and I suppose stress testing them so you can start believing the story. What stands out most to you in that part of the evolution of the narrative?

James Barker: As I said before, in small caps, you do need a reason to exist. So really, "What's the reason that the business exists? Why is it there? Who are they selling the product to?" Getting a really good understanding of the market that they operate in. Secondly, we'll do a lot of work around the unit economics. So we see a lot of businesses that aren't able to articulate what a dollar of operating expense or a dollar of capital expense going into the business actually spits out on the other side. It's really important to understand the earlier stages, because what it does is it allows the business to be able to scale over time appropriately. Thirdly, in the smaller end of the market, and especially with growth stocks, you do need an owner of the business there. So, whether it's a well-incentivized CEO, a major shareholder that sits on the board, someone that can be held accountable and watch the business to grow over the medium term.

Tom Piotrowski: Andrew, it really takes a lot of experience to stress test these early indicators. What do you attribute the most weight to?

Andrew Peros: Yeah. It's interesting because I guess with growth stocks, a lot of the value rests in the outer years and future cash flows which are invariably discounted back in today's dollars. So I guess a lot of the early work that we do, we do a lot of the work upfront. And quite often, a company can sit on the bench or the watch list for many years before it makes it into the portfolio. But we are really trying to assess the sustainability and the durability of those future cash flows. What's special about the company? We try to establish that very early on. "What's its competitive moat? Does it have pricing power? Is it taking market share? Can it grow sustainably through time, through all market conditions, and through all cycles?" So we're looking for capital-light businesses. Companies that have low levels of gearing and James hit the nail on the head with the founders or someone who has a large stake in the business. It's critical that they've got skin in the game and they're going to share in the same pain as us if they don't execute.

Stock analysis

Tom Piotrowski: Well, we're going to have a look at a handful of stocks at the moment. And to your very good point around the transition from founder-led organisations into the next stage of the evolution, Zip really fits that conversation well, doesn't it? And I suppose what stands out recently is you've seen that transition and Cynthia Scott has really done quite an amazing job in turning this organisation around. How do you feel about Zip at the moment? Is it a buy, hold, or a sell?

ZIP Co (ASX: ZIP)

Andrew Peros (BUY): Zip's a buy for me. Cynthia Scott, as you pointed out, she's an incredible executive. She's done a great job transitioning the company over the past couple years. For us, we look at Zip as one of the better ways to get exposure to the US consumer. The buy now pay later space in the US is still in its very infant stages of growth. In fact, it's about 6% of the overall US market. That compares to other more established markets like, for example, Sweden, they've got about 25% of the market there and in Australia, buy now pay later accounts are about 15%. So there's incredible runway for growth. TTV growing at close to 40%, widening operating margins, a very good balance sheet. They've got a buyback in place at the moment. I think it's quite conservative. They could probably double that buyback. So for me it's a buy.

Tom Piotrowski: James, is Zip a buy, a hold, or a sell for you?

James Barker (HOLD): It's a hold for us at the moment. So clearly, management's done a great job in terms of turning around the business, simplifying, getting out of different regions, and really focusing on the core US and Australia divisions. The third quarter result was really strong. That momentum's continued and they continued to take market share in the US and growing ahead of peers over 40%. The pay anywhere card is really helping them capture more of that essentials pool of the market. The only concern we have about the business at the moment, that a lot of the existing customers are spending more on app which is driving a lot of the growth at the moment. We think the business is going to have to transition to winning new customers out there, which is obviously more risky from a bad debts and customer acquisition cost perspective. So we think management have done a great job but prefer to sit on the sidelines until we see how this strategy evolves.

Domino’s Pizza (ASX: DMP)

Tom Piotrowski: The next stock to discuss is Domino's. The markets had a love affair but it's had its heartbroken. James, what do you think of this organisation, buy, hold, sell?

James Barker (HOLD): So Domino's is a hold for us at the moment. So the business has really gone from a store rollout and regional acquisition perspective to a shrink to greatness story. What's happened, obviously, they've been severely impacted by inflation over the last couple of years. So rising interest rates means reduced demand for pizzas and then obviously all the input costs and labour has really hurt the franchisee unit economics. The problem with Domino's at the moment is that you do need those franchisee economics to stack up to be able to continue to roll out stores and really fractionalize the corporate overheads. And that's how the business has grown. You've got new management in place now. They are expecting to come out later this year with an improved strategy around how they turn Japan and France around in particular which are two regions that are really hurting them. We're happy to sit on the sidelines for the moment there.

Tom Piotrowski: Andrew, are you serenaded by the turnaround story for Domino's Pizza? Is it a hold, a buy, or a sell for you?

Andrew Peros (HOLD): Well, Domino's was a market darling. It is a fallen angel. For now, I agree with James, it is a hold. Management have a bit of work to do. It is a new team there. The like-for-likes have deteriorated. The store economics for the franchisees is not hitting their targets. France is an issue, as James mentioned, so there's plenty of work ahead of them. I think there is still something there. The multiple has come back, so it is reflecting those risks. It is a dirty turnaround. I prefer to wait for those green shoots to emerge before I get more interested. So for now, it's a hold.

Lovisa (ASX: LOV)

Tom Piotrowski: Andrew, Lovisa is an organisation that has been marked by an extraordinary rollout strategy. It's been successful, and I suppose the obvious question under those circumstances is, will it continue? Is this organisation a buy, a hold, or a sell for you?

Andrew Peros (BUY): It's a buy for me, Tom. I think that rollout will continue. Some of the channel checks that we've undertaken show that the store rollout program looks to be accelerating. They have got a new, fast, premium jewellery retail program running into the UK. They’ve got 15 stores they are about to roll out under the brand of Jewel. It is one of the highest quality retailers in the small cap space. Retail is an interesting part of the market. You've really got to go hard when it doesn't feel comfortable doing that and I certainly think that now is the time. So it's a buy for me. I think there's plenty of runway for the company to grow.

Tom Piotrowski: Lovisa, James. Is it a buy, a hold, or a sell for you?

James Barker (BUY): Lovisa's a buy for us at the moment. So I agree with Andrew's points around the store rollout potentially accelerating at the moment and the launch of the Jewels brand in the UK. I think the stock's been sold off more recently on the US tariff noise. So if you think about it,US is about 30% of the business. We think that in the context of the global retail space, this is pretty resilient in terms of the average basket size.

So if you put the headline earnings impacts through, it only requires them to lift global pricing by about 4-5%. So on a $20 basket, that's not too bad in the context of other retailers out there. You've obviously got new management starting soon. They are being incentivized on 18-25% EBIT growth. We think that looks pretty reasonable. The market is currently at the bottom end of that range. And as we spoke about before in terms of having an owner of the business, Brett Blundy is obviously a significant shareholder really driving the growth there, so we're happy to back him.

Supply Networks (ASX: SNL)

Tom Piotrowski: Andrew, if Warren Buffett was in the room, I think Supply Networks would be probably his favourite stock on this list. Would it be a buy, a hold, or a sell for you?

Andrew Peros (BUY): Supply Network is a buy. And I do agree, it's a boring stock and probably something that Warren Buffett might be attracted to. But it really is benefiting from some of the structural tailwinds in that part supply to trucks and servicing of those trucks. They're increasing the number of SKUs, they're increasing their footprint, and they're taking share from some of the incumbent OEMs. It ticks a lot of boxes in terms of the stocks that we like. A fast-paced top line, a bottom line which is matching it in terms of growth rates, a high return on investor capital, and it's founder-led, so it's a buy

Tom Piotrowski: James, sometimes success can become boring and people become just a little bit blasé about it. But this is an organisation that has succeeded over generations, decades. Is it a buy, a hold, or a sell for you?

James Barker (HOLD): So Supply Networks is a hold for us at the moment. As Andrew said, we really think it's a high-quality business. There's a clear set of tailwinds in terms of the shift away from OEMs. They continue to take market share there. We just think that this is reasonably well factored into the current trading valuation. So a couple of years ago, management came out with a three-year target for $350 million of revenue. They've hit that a year early and they're expected to hit it this year. They've already come out with their next target for the next three years, but the market's got them getting there in two years. So we just think, on 37 times at the moment, it's delivering about high tens EPS growth. We just think it's reasonably well factored in and we'd love to see a period of consolidation before adding to this high-quality name.

Superloop (ASX: SLC)

Tom Piotrowski: James, the final stock on the list is Superloop. Again, it doesn't really blow the hair back but it's all about execution. Is Superloop ticking boxes for you? Buy, hold, sell?

James Barker (BUY): Superloop is a buy for us at the moment. If you think about the business, it's gone from strength to strength. So the residential segment of the market, they've been able to take a lot of market share in those high-speed plans from an NBN reseller perspective. If you think about the NBN when it was first rolled out, it really impacted a lot of the incumbents. So you had the likes of Telstra and TPG that had to start buying off the NBN. And therefore, it really impacted their margins at the time because they weren't able to utilise their own infrastructure.

So what that meant is you had a big margin impact, then you had a big once-in-a-lifetime churn event when everyone moved on to the NBN. And now, you're in a much more rational environment at the moment. So we think this can continue for a little while longer. That everyone's putting through prices. You saw Telstra raise prices yesterday. TPG has done the same. And so, did Superloop. So we think that the incremental market share they can take from those high-speed plans, take a bit of profit in terms of increased price rises coming through the business, that should benefit from ‘26 onwards, sets them up really well to deliver on their growth.

Tom Piotrowski: Andrew, pricing power is a very attractive quality in an organisation. Is this enough to get you in for a buy when it comes to Superloop?

Andrew Peros (BUY): Absolutely. I agree with James. Superloop's a buy. It's a great business. The NBN challenges have been a real fertile hunting ground for small and micro-cap investors in the past. Superloop have done a fantastic job post the Origin contract. Subs growth are growing. This is a business with a fantastic balance sheet, a good management team, and plenty of runway for growth ahead of them. Aussie Broadband did have a crack at Superloop in the past. They did rebuff that. I still think there's plenty of merit in bringing the two businesses together, heaps of synergies on offer, scale benefits. I think if they were to come together, it would really challenge some of the larger telco businesses on the ASX. So Paul, Brian, if you're listening, try and make it happen.

Tom Piotrowski: Indeed. Gentlemen, wonderful insights today. Thank you very much for your time and thank you very much for watching Livewire's Buy Hold Sell.