October certainly was a tough month for investors with a lot of shares being heavily sold off.
This has left many trading on lower than average earnings multiples. Are they too cheap to ignore?
Adairs Ltd (ASX: ADH)
This home furnishings retailer’s shares may have stormed 10% higher on Thursday, but they are still down over 24% since this time last month. I suspect that concerns over a weakening housing market have weighed on its shares. However, I think this selloff was unnecessary. Especially given the low multiples its shares already traded on and the fact management recently reiterated its guidance for sales and profit growth of up to 14.3% and 13.7% respectively in FY 2019. So, with its shares trading at 10.5x earnings and providing a generous dividend yield, I think Adairs is a great option for investors.
Kogan.com Ltd (ASX: KGN)
A surprisingly bad trading update from this ecommerce company last week has led to the Kogan.com share price being hammered. So much so, they are now trading 72% lower than their 52-week high. This decline means that its shares are changing hands at 21x earnings and offer a trailing fully franked 4.6% dividend. While this could prove to be an absolute bargain buy, I would suggest investors wait and see if management adds more colour to its trading update at its annual general meeting in two weeks.
Reject Shop Ltd (ASX: TRS)
After more than halving in value since this time last month, this discount retailer’s shares are currently priced at just 4x earnings. That selloff was triggered by a disappointing trading update which revealed a sudden deterioration in comparable store sales and a ~40% downgrade to its first half earnings expectations. Management blamed the lack of real wage growth and the increase in basic expenses for the poor performance. I suspect the growing presence of Aldi could also be impacting its performance. Overall, while 4x earnings is dirt cheap, I’m concerned that this could be a value trap.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Kogan.com ltd and The Reject Shop 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.