The best time to buy ASX shares is when they’re at a low price. But investors don’t push share prices down for no reason. Share prices only go down when there’s something to worry about.
However, it’s not often that businesses can turn around their fortunes.
I think these ASX shares could make a big turnaround:
Share 1: Vitalharvest Freehold Trust (ASX: VTH)
Vitalharvest is an agricultural real estate investment trust (REIT). It owns citrus and berry farms which are leased to Costa Group Holdings Ltd (ASX: CGC).
The Vitalharvest share price has fallen 16% over the past year despite Australia interest rates now being at a record low.
The current setup is that Vitalharvest earns two types of rent. It earns a fixed amount of rent from its farms, there is also a fixed return for any improvements made to the farms. However, Vitalharvest also has a profit-share agreement with Costa at the Vitalharvest farms. There has been some difficulties at the farms recently, which has hurt the variable earnings and sentiment.
But things could soon improve for Vitalharvest after it was announced that Primewest Group Ltd (ASX: PWG) had acquired the management rights of Vitalharvest. Primewest is a property manager that manages $4.1 billion of assets across a number of sectors. Primewest has also acquired an 11.8% interest of Vitalharvest.
Vitalharvest will be renamed Primewest Agri-Chain Fund. It will invest in agriculture property and other assets that are critical to the agricultural supply chain like processing and manufacturing facilities for food, food and beverage packaging facilities and storage facilities related to food. It will be looking for long-term tenants and it will target high quality locations throughout Australia and New Zealand.
I think that the right acquisitions could excite investors and grow the net asset value per share (as well as the share price). Plus, a good result from Costa would help things too.
Share 2: BWX Ltd (ASX: BWX)
BWX is a leading natural beauty business with a variety of brands including Sukin.
The company hasn’t given an official update since its FY20 half-year result, nor has it done a capital raising. Hopefully that means no news is good news. It may also mean it’s still on track to meet its full year FY20 guidance of revenue growth of 20% to 25% and earnings before interest, tax, depreciation and amortisation (EBITDA) growth of 25% to 35%.
You may not have believed it could achieve that type of growth a couple of years ago. The new management has really turned things around.
I thought the FY20 half-year result was very impressive from the ASX share with revenue growth of 23% and statutory net profit growth of 63%. The gross profit margin increased by 20 basis points compared to the first half of FY19.
A strong point for BWX is that it’s growing all its major brands, and it’s growing in Australia, Asia and North America. It’s on track to become a $50 million supermarket skincare business in Australia and a $100 million skincare business in the US.
Whilst Sukin is still the key brand and generating the most growth, the US brands are showing solid growth too. In the FY20 half-year result Andalou Naturals grew revenue by 15% to $26.2 million and Mineral Fusion grew revenue by 28% to $12.7 million.
If BWX keeps growing like this it then it’s got a great chance of producing market-beating returns.
Share 3: Reject Shop Ltd (ASX: TRS)
Reject Shop is a business on the up already. I think that could continue once investors see the next result.
The ASX share had stabilised itself at the FY20 half-year result where it reported half-year sales were up 0.7% with comparable sales growth of 0.5%. In that result Reject Shop reported that net profit after tax (pre-AASGB 16) was up 5.3% to $11.1 million.
Reject Shop made an announcement on 23 March 2020. It said at that point that in the last four weeks it had experienced a material increase in sales due to customer concerns about the coronavirus. Comparable sales growth for the first twelve weeks of the second half of FY20 was 8.2%.
Comparable sales growth for the week between 16 March 2020 to 22 March 2020 was 36.1%. This was driven by strong category performances in groceries, cleaning, toiletries and pet care.
I don’t expect the ASX share will keep growing like it was during the first set of restrictions, but I think the company may have turned a corner, particularly if customers remain focused on good value shopping.
I think each of these shares is a good turnaround idea. I’d pick Vitalharvest for income and BWX for growth. I’m a little less sure of retail – it’s a brutal industry which is steadily moving online.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BWX Limited and COSTA GRP FPO. 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.