There are some ASX shares that could be cheap and may be worth looking at.
One of the most common ways that investors try to compare different investments is by looking at the price / earnings ratio (P/E ratio). The lower it is, the cheaper it is, though that doesn’t necessarily give the best indication of value.
However, there are some businesses that are growing quickly yet are valued at a relatively low p/e ratio compared to other companies and sectors.
Here are two that fit that description:
Accent Group Ltd (ASX: AX1)
Accent is an ASX retail share that sells a large array of different shoe brands from its different stores. Its flagship chain of retail outlets is called The Athlete’s Foot.
Like plenty of other retail shares, the company is experiencing high levels of growth in these strange times due to COVID-19.
In the recent FY21 half-year result, total sales went up by 6.6% to $541.3 million. Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) went up by 44% to $97.5 million, earnings before interest and tax (EBIT) grew by 47.3% to $81.8 million and earnings per share (EPS) rose 56.9% to 9.76 cents.
This result was driven by a 110% increase of online sales to $108.1 million, which represented 22.3% of total sales.
The strong result allowed the company to pay a record ordinary interim dividend of 8 cents per share, up 52.4% compared to the prior corresponding period.
In the first eight weeks of FY21, like for like sales were up 10.7%, whilst digital sales were up 65.4%.
The Accent CEO Daniel Agostinelli said:
Accent’s integrated digital capability, large and growing store network, strong portfolio of exclusive distributed brands and emerging capability in building new business formats and vertical products continues to drive strong sales and margin growth. The management team remains focused on driving digital growth and innovation. With long-term objectives and incentives linked to driving at least 10% compound EPS growth, Accent continues to be defined by strong cash conversion and the consistently strong returns it delivers on shareholders’ funds.
According to Commsec, the Accent share price is valued at 16x FY21’s estimated earnings.
Nick Scali Limited (ASX: NCK)
Citi currently rates Nick Scali as a buy and has a share price target of $12.05.
Furniture business Nick Scali is seeing record levels with its order book, which is an indicator of future revenue and potential profit. The sales order growth in January 2021 was up 47%, representing the largest month of written sales orders in the company’s history.
The furniture business said that in the first six months of FY21 its sales revenue climbed 24.4% to $171.1 million, with pre-AASB16 EBITDA jumping 94.2% to $60.2 million and EBIT doubling to $57.7 million.
Nick Scali’s margins climbed substantially during the six-month period, with the gross profit margin increasing by 180 basis points to 64% and the EBIT margin growing by 1,270 basis points to 33.6%.
Underlying EPS doubled to 50 cents, allowing the board to increase the interim dividend by 60% to 40 cents per share.
Nick Scali has its eyes on the online growth potential. The company said in the half it saw $8.8 million of written sales orders, with an EBIT contribution of $3.5 million. It now expects to significantly exceed the $4 million contribution previously forecast for the full year. The company also said:
There remains significant scope for growth in the online segment, via adjacent product opportunities as well as continuing to build Nick Scali’s online offering in New Zealand. Investment in the capability is underway with further updates expected in the second half of FY21.
According to Citi, the Nick Scali share price is trading at 11x FY21’s estimated earnings with a projected grossed-up dividend yield of 11%.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Accent Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.