2 fantastic ASX shares that brokers rate as buys

This article is about 2 fantastic ASX shares that brokers have rated as buys, including discount retail business Reject Shop Ltd (ASX:TRS).

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There are some fantastic ASX shares that brokers have rated as buys for investors to look at.

When multiple brokers think that a business is a buy then it could be worthwhile taking an interest in that idea.

The below investments have a lot of growth potential and have been rated as buys by more than one broker:

Audinate Group Ltd (ASX: AD8)

Audinate is currently rated as a buy by at least three brokers including UBS. The broker has a share price target on Audinate of $10.10 over the next 12 months.

What does Audinate do? It’s a business that provides audio over IP networking solutions. It’s used in the professional live sound, commercial installation, broadcast, public address and recording industries. The product is called Dante.

Dante replaces traditional analogue audio cables by transmitting synchronised audio signals across large distances, to multiple locations at once, using just an ethernet cable.

It has been one of the businesses negatively affected by COVID-19 due to the effects of virtually no large events. However, the brokers see an opportunity and Audinate is seeing a recovery.

In the first half of FY21 it generated US$11.1 million of revenue, an increase compared to the US$9.3 million in the second half of FY20. It also generated $3.2 million of operating cashflow, which demonstrates the type of margins that Audinate can make in the future.

Audinate reported that its Dante-enabled products were up 27% to 3,008. Management say this is a key leading indicator of future growth.

Management believe the pandemic could serve as a catalyst for an acceleration of the transition from old school analogue cabling to networked audio and video.

Reject Shop Ltd (ASX: TRS)

Reject Shop is one of the largest discount retailers in Australia with a national store network of shops.

It’s currently rated as a buy by at least three brokers including Morgans. The broker has a share price target of $8.91 on the retailer.

Reject Shop is currently working on reducing its cost base by reducing administrative expenses and simplifying and standardising its in-store processes.

COVID-19 has affected its CBD and large shopping centre locations where there is reduced footfall.

However, despite the impacts of lockdowns on the business, it managed to generate a large amount of growth in the first half of its FY21.

Underlying earnings before interest and tax (EBIT) grew by 44.9% to $23.3 million and underlying net profit after tax (NPAT) went up 46.5% to $16.3 million.

Management believe that the discount variety sector presents a significant opportunity for growth over the medium to long term. The ASX share is well positioned to capture this growth.

Once management are happy with the company’s reduced cost base, it will be well placed to pursue longer-term growth through store network expansion and growing its online presence.

According to UBS, the Reject Shop share price is valued at under 20x FY22’s estimated earnings.

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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AUDINATEGL FPO. The Motley Fool Australia has recommended AUDINATEGL FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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