Compelling opportunities: 2 quality ASX shares to consider

City Chic and Metcash are two ASX shares that could be worth considering this weekend.

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The two ASX shares in this article could be compelling opportunities to consider.

Some businesses are rated as buys by analysts at brokerage outfits. Those brokers are always on the lookout for opportunities.

There are some businesses that grew profit significantly over FY21 and have plans to grow further over the long-term.

Here are two ASX shares that could be ideas to think about:

City Chic Collective Ltd (ASX: CCX)

City Chic is a retailer that sells plus-size clothes, footwear and accessories for women.

It has a number of operating businesses for different segments and geographic regions of the market. Names include City Chic, CCX, Avenue, Evans, Fox & Royal, Hips & Curves and Navabi.

The idea of all these brands is to grow in the global plus-size market. Management believes there’s still plenty of growth potential in the USA, UK, EU and Canada with its current product stream.

The ASX share said that the average annual spend in plus-size is currently materially less than the rest of the women’s apparel market and there are increasing rates of plus-size women globally. Current online sales represent around 25% of total plus-size sales globally. The company said there is strong forecast growth in online channels in the global plus-size market.

City Chic is growing organically and through acquisitions, such as Evans in the UK.

In FY21, the business generated sales revenue growth of 32.9%, whilst underlying net profit grew 80.6%. Online sales grew 49.3% and represented 73% of total sales.

Morgan Stanley rates the ASX share as a buy, with a price target of $6.65. It thinks it can win market share from competitors.

Metcash Limited (ASX: MTS)

Metcash is a business that operates across three pillars – food, liquor and hardware.

It’s the largest supplier to independent supermarkets in Australia. Metcash supplies over 1,600 stores including IGA and Foodland. In liquor, it is the second largest player in the market, supplying around 90% of independent liquor stores in Australia such as IGA Liquor, Bottle-O and Cellarbrations. The ASX share is also the second largest player in the Australian hardware market, with the Mitre 10 and Home Timber & Hardware businesses.

Metcash also recently increased its ownership of Total Tools from 70% to 85% for an acquisition cost of $59.4 million. Total Tools is the largest professional tools network in Australian with 90 bannered stores.

The ASX share says that Total Tools has “significant growth opportunities”. Growth plans includes expansion of the store network and the acquisition of an ownership interest in some stores.

Metcash says that it has a strong focus on shareholder returns. It has recently increased its target dividend payout ratio from 60% to 70% of net underlying profit after tax, together with an announced off-market buy-back of $200 million.

In the first 16 weeks of FY22, food sales growth slightly reversed as it’s now cycling against strong sales in FY21.

However, liquor and hardware sales continue to rise in FY22, with growth of 9.5% and 16.3% respectively. Metcash said that trade sales continued to be strong, buoyed by a high level of residential construction and renovation activity.

The broker UBS currently rates Metcash as a buy, with a price target of $4.60. UBS believes that the Metcash share price is valued at 17x FY23’s estimated earnings.

Should you invest $1,000 in City Chic right now?

Before you consider City Chic, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and City Chic wasn't one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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