There are many S&P/ASX 200 Index (ASX: XJO) and All Ordinaries (ASX: XAO) shares that have fallen from grace and now represent an increasingly tempting long-term investment. But with all things considered, could they be a long-term bargain buy or a value trap?
Here are two ASX growth stories that have more than halved in share price but may present investors with a sound long-term opportunity.
Jumbo Interactive Ltd (ASX: JIN)
The internet lottery business Jumbo Interactive has had its share price topple more than 60% since reaching its all-time high of $27.92 in October. The Jumbo share price was truly priced to perfection at a price-to-earnings of more than 50 before its fall.
The company has provided a somewhat positive market update, stating: “Prior to the onset of the COVID-19 crisis, almost 75% of all Australian lottery tickets were sold via retail channels. With the expected impact that social restrictions will have on retail channels, the company is well placed for an increase in online lottery demand”.
Jumbo currently estimates that FY20 revenue will be between $68.5 million to $69.9 million or a 5% to 7% increase on FY19. Meanwhile, net profit after tax (NPAT) is forecasted to decline between 4% to 7.5%.
I believe the Jumbo share price has largely priced the negative news and currently trades at a moderate price-to-earnings of approximately 25. While I wouldn’t be buying Jumbo shares just yet, the transition from retail to online lottery purchases could do the share price justice in the short to medium term.
EML Payments Ltd (ASX: EML)
Global prepaid fintech enabler EML has likewise faced challenging trading conditions and seen its share price slide more than 60% since its all-time high of $5.70 in February.
The company provided a trading update for its first eight months of the year to 29 February 2020 that had its revenue increase 25% and earnings before interest, tax, depreciation and amortisation (EBITDA) increase 34%, in line with the upper end of its guidance range.
However, the current trading environment is unpredictable. Recent public announcements by several of EML’s major customers, including shopping mall property owners and gaming customers, have been significantly negative with respect to future trading conditions as social distancing rules are implemented, non-essential retail stores in certain countries are closed and gaming operations are impacted by the cancellation of events.
EML is again one of those businesses that have been adversely impacted by the coronavirus pandemic. The impact that COVID-19 may have on EML’s full FY20 earnings is a concern for the business moving forward.
One of the positive pieces of news that have come out of EML is its renegotiated acquisition of Prepaid Financial Services (PFS). The upfront enterprise valuation has been reduced from £226 million to £131.5 million. Post completion, EML will have in excess of $100 million in cash and no debt.
The near-term risks for the business and high price-to-earnings ratio do dissuade EML as an investment today. However, I believe the revised PFS acquisition and EML’s strong cash position will allow the company to ride out the storm.
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Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Emerchants Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Jumbo Interactive Limited. The Motley Fool Australia owns shares of and has recommended Jumbo Interactive Limited. The Motley Fool Australia has recommended Emerchants 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.