Are these 2 beaten-up quality ASX shares now buys?

Some great ASX shares have suffered this month. But are they now buys?

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Key points

  • Some quality ASX shares have taken a dive in recent weeks
  • Fast food business Collins Foods is achieving compelling progress in Europe
  • Pro Medicus shares have seen a sharp decline, but profit and the company’s client base continue to grow

January 2022 has been a rough month for plenty of ASX shares. Does that now make them buys?

Well, just because a share price drops it doesn’t automatically make it better value or a buy. Sometimes shares of businesses drop because they genuinely are worth less than they used to be because of a problem.

However, a decline in the share price can provide an opportunity to buy good businesses at better prices.

With that in mind, here are two that have suffered recently:

Collins Foods Ltd (ASX: CKF)

The Collins Foods share price has fallen by 16% since 4 January 2022.

Collins Foods is a large franchisee of KFCs. It has 260 outlets in Australia, 16 in Germany and 35 in the Netherlands. But it also has a small but growing network of Taco Bells in Australia as well. There are 13 in Queensland, four in Victoria and one in Western Australia. The company’s goal is to expand these networks across the regions where it operates.

At the end of November, the company reported another period of growth for the first of FY22. It said that the result was underpinned by a return to growth in its European operations. Total revenue increased 8.5% to $534.2 million, whilst underlying net profit after tax increased 31.6% to $28.9 million.

Collins Foods also recently announced its corporate franchise agreement in the Netherlands commenced on 31 December. It now has full responsibility for developing, marketing, operating, and supporting the KFC business in the Netherlands.

Is the ASX share a buy now? Macquarie thinks so, with an ‘outperform’ rating and a price target of $14.80. The broker notes that inflation and other short-term issues could be problematic, but continuing growth of its restaurant numbers will help in the longer term.

Macquarie’s projections put the Collins Foods share price at 21x FY22’s estimated earnings.

Pro Medicus Limited (ASX: PME)

The Pro Medicus share price has fallen 28% since 4 January 2022.

This business is a healthcare IT company that specialises in enterprise imaging and radiology information system (RIS) software.

It has a global presence that is growing, particularly in the US as well as the EU. In FY21, it had six major client wins, with five in North America. The business also received FDA clearance for its breast density algorithm.

Pro Medicus has a very high earnings before interest and tax (EBIT) margin — it was 63.2% in FY21. This helped underlying revenue rise by 19.5% whilst profit after tax jumped 33.7%. The company is debt-free and continues to grow its full-year dividend by double digits.

Its cloud services give it a “huge strategic advantage” over competitors according to the company. Pro Medicus also believes it’s strategically positioned to leverage AI. Management is expecting to win more contracts – the pipeline continues to grow strongly.

Morgans currently rates the ASX share as a hold. However, the price target is $54.49, which implies a rise of around 20% over the next year.

Should you invest $1,000 in Pro Medicus right now?

Before you consider Pro Medicus, 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 Pro Medicus wasn't one of them.

The online investing service he’s run for over 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.

*Returns as of January 13th 2022

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. owns and has recommended Pro Medicus Ltd. The Motley Fool Australia owns and has recommended Pro Medicus Ltd. The Motley Fool Australia has recommended Collins Foods Limited. 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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