‘Undervalued’ is a term used in finance to describe a security or other kind of investment that is being sold in the market at a price that is thought to be less than its actual ‘intrinsic value’. Analyzing the fundamentals of the underlying company and glancing at its financial statements will help you determine whether the stock is cheap. For estimating the intrinsic value of the stock, it’s important to estimate the cash flows.
Finding an opportunity to buy shares at a discount from reputable or promising companies can be a little challenging. Investors should seize the opportunity when quality companies see a correction in their share prices during a market meltdown or blood bath.
Here we have presented the top 5 ASX ‘undervalued stocks’ with sound fundamentals that might result in huge upside potential. These are as follows:
Note: The market cap and the share price of the selected ASX companies below are mentioned as of 23 January 2024.
Tamawood Limited (ASX: TWD)
Market cap: $89.86 million
CMP: $2.45
Tamawood Limited continued to receive inquiries at the same levels as previously advised; these levels are roughly 130% higher than those from the same corresponding period in FY2023. There is still no debt for Tamawood. To lessen the detrimental effects of price increases on margins, the company kept a positive working relationship with its software supplier, SEnterpriSYS, by adjusting prices early. Integrated "AI" software helps with important tasks to reduce risks. With direct control over 15% of the supply chain, Dixon Home is where the company is most firmly established. Net tangible assets per common share on the FY2023 balance sheet total 74.72 cents. The previous five years have seen good maintenance of the gross margins. The business provides a respectably high return on equity percentage. Overall, the company's strong liquidity positions on the balance sheet will aid in overcoming the upcoming challenges.
Coles Group Limited (ASX: COL)
Market cap: $21.23 billion
CMP: $15.86
COL is taking significant steps to address stock losses and enhance its digital footprint. Their top priority is addressing stock loss, with a strong focus on improving product availability to drive sales growth and enhance customer satisfaction.
In terms of expansion, their plans for FY2024 include opening around 15 new stores, closing six stores, and renewing 50 stores in supermarkets. Similarly, in Liquor, they aim to open approximately 20 new stores, close six stores, and renew over 100 stores. The launch of the second ADC is also on schedule. Strong net cash from operating activities, with a 102% cash realisation rate, highlights effective financial management for stability and growth. These efforts demonstrate Coles Group's dedication to customer satisfaction, blending physical and digital experiences.
Mandrake Resources Limited (ASX: MAN)
Market cap: $25.25 million
CMP: $0.041
Mandrake’s future growth and capability to deliver revenues, returns, and strong earnings remain highly probable, as its progress is also complemented by favourable market conditions and government support, while its flagship project holds great prospects for a large-scale lithium project. The company has seen growth in its exploration assets in the past, leading to a healthy asset base of $23.6 million with no considerable debt or long-term liabilities, contributing significantly to the security of the investment. Mandrake has also managed to sustain its cash balances over a longer time frame with modest operational expenditures and remains well-financed to fund developments. A plan to deliver a maiden mineral resource estimate also remains underway and would prove to be a key value driver in the near term.
Resource Development Group Limited (ASX: RDG)
Market cap: $120.99 million
CMP: $0.041
The expected valuations for RDG look promising. By FY2026, they anticipate lower ratios for EV/revenue and P/sales, which means a more reasonable assessment of their value relative to revenue and sales. The P/B ratio indicates the stock might be undervalued in relation to its assets. With a moderate ROE of 6.36%, RDG seems steadily profitable. These projections suggest a positive outlook, showing a balanced approach to valuing the company's worth.
Corporate Travel Management Limited (ASX: CTD)
Market cap: $3.07 billion
CMP: $20.95
Corporate Travel Management has showcased exceptional revenue and EBITDA growth since its IPO in 2010, with revenue increasing 26 times and EBITDA rising 47 times. By distributing dividends equivalent to around 50% of net profit after tax (NPAT), the company consistently rewards shareholders. It boasts a 97% customer retention rate.
In order to sustain revenue growth in the corporate travel industry, the company has established strong client relationships. Its resilient clientele, which includes 40% government and important travel clients, contributes 80% of its revenue from overseas markets. This approach helps it stay resilient even in the face of market recovery challenges.
Reference: *All Data has been sourced from Company announcements and Refinitiv, Thomson Reuters
Frequently Asked Questions (F.A.Q)
What are the best ASX-undervalued stocks?
• Mcmillan Shakespeare Limited (ASX: MMS)
• Coles Group Limited (ASX: COL)
• Mandrake Resources Limited (ASX:MAN)
• Resource Development Group Limited (ASX: RDG)
• Corporate Travel Management Limited (ASX: CTD)
What is the importance of undervalued stocks?
Investors stand to earn the difference between the market value and the company’s real value. When the prices of the most discounted stocks rise, they could yield substantial profits. The availability of valuation multiples on-site makes research for value investing relatively simpler.
What are the fundamentals of Corporate Travel Management Limited?
The forecasted financial metrics suggest a positive trajectory for the company's valuation proposition. Anticipated declines in key ratios like EV/EBITDA, PE, and P/Cash Flow indicate improving value relative to earnings, potentially attracting investors. The projected growth in dividend yield from 2.95% to 3.86% by FY26 offers an appeal to income-focused investors. The company's revenue forecast for Fiscal Year 2024 ranges from $770 million to $850 million, coupled with anticipated EBITDA between $240 million and $280 million and a profit before tax and amortization spanning $193 million to $233 million.
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