Should you buy these cheap ASX shares?

The Australian share market currently trades on a price-to-earnings ratio of just over 17x, which is notably higher than its historical average.

But while the market is trading at a premium to its historic average, not all shares on the market are doing so.

In fact, the three shares below are trading on significantly lower than average multiples. Does this put them in the buy zone?

iSelect Ltd (ASX: ISU)

At present this price comparison company’s shares are changing hands at a lowly 9x trailing earnings, whereas over the last five years they have tended to trade at a notable premium to the market average. However, a sudden downturn in the company’s performance arguably justifies this rerating. Last month iSelect downgraded its full-year underlying earnings before interest and tax guidance to between $8 million and $12 million from between $26 million and $29 million. If this underperformance proves to be short-lived then investors could be rewarded handsomely. However, I intend to wait for signs of improvement before making a move.

Super Retail Group Ltd (ASX: SUL)

This retail conglomerate’s shares are trading at just over 11x trailing earnings at present. Traditionally Super Retail’s shares have traded in line with the market average, possibly indicating that they are undervalued today. I suspect that the market is waiting patiently to see if the acquisition of Macpac helps to turn around the poor performance of its Leisure segment. If it does, then I wouldn’t be at all surprised to see its shares rerate higher in FY 2019. This could make it worth considering.

Telstra Corporation Ltd (ASX: TLS)

While this telco giant’s shares have tended to trade at a reasonable discount (10% to 20% lower) to the market average over the last decade, this discount has widened considerably over the last 12 months. At around 10.5x trailing earnings Telstra’s shares are trading 40% below the market average today. I think this makes its shares an attractive option for investors and believe they could rerate higher in the future. Especially if the Federal Government decides to write-down the value of the NBN. This would almost certainly lead to higher margins and support its current 22 cents per share dividend.

Finally, while these quality shares may not be "cheap", they are great value considering their explosive growth potential.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of Super Retail 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.

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