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Key points
- Brokers have outlined that the two ASX shares in this article look like attractive opportunities
- Retailer Baby Bunting is growing profit margins, increasing its store count, improving its e-commerce offering and expanding into New Zealand
- ASX tech share Xero is still winning accounting subscribers at a fast pace, whilst growing its gross profit margin
Last month was a very volatile start to the year. Lower share prices could mean that February 2022 is a great time to go bargain shopping for some of the most impressive ASX shares.
The businesses that the experts rate as buys in this article are ones that have been growing for a number of years with plans to add even more value for shareholders into the future, including international growth.
These two ASX shares are ones to take a look at:
Baby Bunting Group Ltd (ASX: BBN)
Baby Bunting is by far the largest baby and infant product retailer in Australia and New Zealand.
Its main growth strategy is to grow its market share. Baby Bunting is investing in its digital store and capabilities to deliver the best possible customer experience across the channels. For example, in FY21, it opened a new 22,000 sqm distribution centre.
It's also looking to grow its market share by expanding its store network. In FY21, it grew its store network by four stores. In FY22, it is expecting to open six to eight new stores in Australia, open two new stores in New Zealand, and 'localise' the NZ digital experience.
The company has been managing to grow its profit margins with improvements in its retail store efficiencies and by increasing the amount of private label and exclusive product sales. These made up 41.4% of total sales and come with a higher gross profit margin.
The ASX share's earnings before interest, tax, depreciation and amortisation (EBITDA) margin was 9.3% in FY21 — the goal is 10% and this was achieved in the second half of FY21.
Morgan Stanley rates it as a buy with a price target of $6.90 – that's more than 30% higher than today. It noted that in FY22 to 3 October 2021, sales had done well. Total sales managed to grow another 1.5%.
Xero Limited (ASX: XRO)
Xero is one of the largest cloud accounting providers in the world. It has a significant presence in countries such as Australia, New Zealand, and the UK. At last count, it had reached 3 million subscribers as at 30 September 2021, which was a 23% increase from the prior corresponding period.
Since the start of the year, the Xero share price has dropped 22%.
The ASX share has renewed its investment into customer growth opportunities again after temporarily slowing the growth spending due to the COVID-19 pandemic. The increased re-investment includes growing spending on subscriber addition initiatives and 'innovative' brand awareness campaigns in a number of markets.
Xero's goal is to be the world's most insightful and trusted small business platform to make life better for people in small businesses, their advisors, and communities.
Management says that there are multiple drivers for cloud-based software adoption, including digitisation of tax compliance, innovation of financial services, and an imperative for small businesses to prepare for the future.
Xero has a very high gross profit margin but it continues to grow. In HY22, the gross profit margin increased from 85.7% to 87.1%.
Morgan Stanley also rates Xero as a buy, with a price target of $137 – that implies a potential upside of around 20% at the current Xero share price. The broker is encouraged by a number of metrics doing well like the average revenue per user (ARPU) rising and customer retention staying high.
