Both the Blackmores Limited (ASX: BKL) share price and the NextDC Ltd (ASX: NXT) share price have taken quite a beating so far this year, down 26.5% and 3.11%, respectively.
Despite this, I believe both of these ASX companies are in the buy zone. Here's why.
Why Blackmores?
Blackmores is an Australian company that sells vitamins, herbs, minerals and nutrients. In its HY earnings call, the company reported net profit after tax of $34.3 million, increasing just 0.4%. Even then, management isn't expecting any improvement in the second half of the year. This has sunk the company's share price to $89.60 at close of trade today.
The health company has been struggling acutely within the market as it competes with heavily discounted products, inefficient logistic models and distribution strategies which increased costs.
To account for this, Blackmores appointed a new manager to head the market strategy in China. Its new strategy entails increasing direct-to-consumer sales by working directly with e-commerce models like Alibaba.
Despite the stumbling blocks in 2019, the company is still operating on a 22.58x P/E multiple which shows investors still have confidence in its future potential. This is because of Blackmores' strong management team, attractive underlying business metrics and strong track record on the ASX.
I'm adding Blackmores to my April buy list because it is clear that the company is committed to significant business transformation. However, I'll be keeping an eye out on news around management and market penetration strategies in China.
Why NextDC?
NextDC maintains and develops data centres in Australia. Its infrastructure allows companies to outsource its data via cloud platforms and also sells support services for these functions.
I'm confident NextDC has a defensible proposition. Companies are increasingly required to shift IT networks to the cloud rather than relying on workplace services. This is because services such as cyber risk, system maintenance and networking issues can be outsourced to NextDC. By doing this, businesses can reduce capital expenditure and solve data-storage solutions. This has become increasingly critical in today's business environment.
In it's HY report, interconnections were up 34% to 9,982 and contracted utilisation grew 28% to 50.4MW. It was the company's underlying EBITDA that missed analyst expectations and sunk the stock price by 8% on February 27 post-announcement. Furthermore, NextDC downgraded its full year guidance to $180 – $184 million from $183 – $188 million. On top of this, the company's debt levels comprise almost 75% of equity which should spark investor concern. This result sent the company's stock price plummeting 18% from a peak of $7.20 to $5.92 currently.
However, it should be noted that pre-tax profit will be unchanged, and the downgrade is due only to NextDC's recent acquisitions. Similarly, the company has a high current ratio of 8.96x which obliterates any short-term cash flow concerns. Overall, digging into the fundamentals show the fall in market cap for NextDC is only a surface-level problem. Its product demonstrates market-fit and underlying business metrics remain strong.
