3 Australian Growth Stocks With ROE Over 28%

Global bond yields have retreated on more cautious central bank signals, which puts the spotlight back on stock picking rather than just riding interest rate trends. That creates an opening in smaller Australian companies with solid balance sheets that many large funds still overlook. This article walks through three high quality under the radar stocks from a specialist screener that aims to surface potential future market leaders before they become crowded trades.

The stocks covered below are a sample of the idea, and the full screen surfaced 10 more companies with equally compelling stories that are not included in this short list. To see the broader opportunity set, head straight into the High-Quality Undiscovered Gems screener to identify, filter and analyze your own highest conviction candidates.

Emerald Resources (ASX:EMR)

Emerald Resources is a Perth based gold company that has turned its 100% owned Okvau Gold Project in Cambodia into the main engine of its business. This is exactly the kind of focused, under followed asset the High Quality Undiscovered Gems screener looks for. Almost all of its A$612 million in revenue comes from mine operations, with only about A$11 million from other activities, and the business currently earns the vast majority of that from Cambodia. The stock is already a sizeable small cap at around A$4.77b, yet it still flies under many institutional radars.

Emerald Resources provides direct exposure to a single, producing gold asset that is already reporting net margins of 42.4%. These margins are supported by strong returns on equity and double digit earnings growth forecasts. That combination of profitability, growth and focused exposure is what this screener is designed to surface before larger funds pay attention. The trade off is that almost everything hinges on the Okvau mine, with funding and execution risk concentrated in one jurisdiction and one project. For investors willing to accept that concentration, there is a deeper story behind those production and earnings numbers that may warrant closer examination.

Emerald Resources appears to be a focused growth story, yet a single producing asset can mask as much as it reveals. Before assuming the Okvau engine keeps running smoothly, review the analyst forecasts for Emerald Resources and see what could change the script next.

Australian Ethical Investment (ASX:AEF)

Australian Ethical Investment runs a suite of ethical managed funds that channel client money into areas like renewable energy, recycling, sustainable products and clean technology, which directly ties it to the High Quality Undiscovered Gems theme. Almost all of its A$129.55 million in revenue comes from funds management fees in Australia, so the scale and appeal of these products are the real economic engine. With a market cap of about A$479.2 million, it remains a smaller listed fund manager that many larger institutions may not be focusing on yet.

Investors watching the rise of ethical investing should have Australian Ethical Investment on their radar. The company converts its specialist ESG positioning into fee income from a focused funds management business, supported by strong profitability metrics such as high returns on equity and expanding net margins. At the same time it faces real pressure from fee cuts, growing competition from bigger asset managers and ongoing spending on technology and compliance. How that trade off between growth, pricing and costs plays out, and what that means for valuation, is where the real opportunity or risk lies for patient investors willing to look beyond the headline ESG label.

Australian Ethical Investment is turning values based investing into a fee engine, yet pricing pressure and rising costs could be masking where the real leverage sits. For a detailed overview, see the analysis report for Australian Ethical Investment

EDU Holdings (ASX:EDU)

EDU Holdings runs Ikon and Australian Learning Group, two Australian tertiary education providers focused on human services, counselling and early childhood qualifications that link directly to the High Quality Undiscovered Gems screener theme of scalable, in demand education. The company generates all of its A$100.6 million in revenue from education services and related segment adjustments in Australia, delivered through campuses and online. At a market cap of about A$143.2 million, EDU Holdings remains a small cap that many larger funds may still be overlooking.

EDU Holdings is turning higher education and vocational courses in skills shortage areas into a cash generating business that is still priced like a problem stock. Investors get a focused education group with rising earnings, high returns on equity and a track record of buybacks and fully franked dividends. Yet the market continues to treat it as just another visa exposed education provider. The main tension is regulatory and funding risk, especially around international students and external borrowings. These factors could quickly change the story if policy or cash flows move against it. For investors willing to look past the sector headlines, the current valuation and recent board and earnings updates indicate that the full EDU Holdings story is not yet reflected in the share price.

EDU Holdings continues converting skills shortage courses into cash while the stock is still treated like a sector problem. See what the analyst forecasts for EDU Holdings suggests about where the real leverage and risk might be hiding.

Seeking Fresh Alternatives Before Momentum Flies

Fresh stock ideas move from under the radar to fully priced faster than most investors expect. Catch potential breakouts while the information still matters. Get in early.

• Track resilient compounders that aim to protect your downside while keeping upside momentum alive with a curated group of 14 resilient stocks with low risk scores.
• Spot early leaders in next generation infrastructure supporting AI demand with a focused set of 55 AI infrastructure stocks.
• Ride potential upside from mining companies tied to precious metals momentum by scanning a targeted pool of 10 top silver producer stocks.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com