7 small-cap ASX shares that have been oversold: Wilsons

This bunch of smaller companies haven't essentially changed their performance or outlook, yet have been punished by investors.

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Small-cap ASX shares have suffered over the past few months, plunging more than their bigger cousins.

Even after a mini-revival over the last few trading days, the S&P/ASX Small Ordinaries (ASX: XSO) index is still down 7.4% for the year, compared to just 2.8% for the S&P/ASX 200 Index (ASX: XJO).

But of course, not all small-cap businesses are the same. 

Sure, some might be feeling the effects of supply chain delays, inflation, or the war in Europe — but every company is different in the way such external factors impact current and future performance.

And if small caps have been faring worse than large caps in recent weeks, this could be a contrarian opportunity to buy in.

This is why Wilsons nominated a bunch of ASX shares that it thinks have been oversold, even though the businesses remain the same as before the correction.

7 businesses that haven't changed, except for share price

The Wilsons team named seven small-cap ASX shares:

"We screen for profitable small caps that in our view have been [disproportionately] sold down this year, and where the outlook in our view has not significantly changed," stated Wilsons in a memo to clients.

Out of the group, the analysts held a marginally higher conviction for Super Retail, Temple & Webster, and Integral Diagnostics compared to the rest.

After a 30% share price correction, Super Retail is looking good in the immediate future as COVID impacts diminish.

"Our expectations around a strong Easter performance and potential benefit from next week's Federal Budget are not yet reflected in the share price."

Integral Diagnostics will be another post-pandemic recovery story, according to Wilsons.

"The radiology operator was hit by COVID closures over the new year, stalling the reopening benefits," the memo read.

"Recent $90 million equity raising now leaves the stock digesting this additional capital."

The Wilsons team reckons Temple & Webster shares are simply cheap now after the company was caught up in the general sell-off of high-growth names.

Domain also plunged from the same fate, although some of it was its own doing.

"In the HY22 result, management warned [of] higher costs and an easing property market in Sydney and Melbourne, which hit the share price."

The two retail stocks had the most economical 12-month forward price-to-earnings ratio, with Accent at 13.3 and Super Retail trading on 11.6.

Motley Fool contributor Tony Yoo owns Temple & Webster Group Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Netwealth, Super Retail Group Limited, and Temple & Webster Group Ltd. The Motley Fool Australia owns and has recommended Netwealth and Super Retail Group Limited. The Motley Fool Australia has recommended Accent Group, Integral Diagnostics Ltd, and Temple & Webster Group Ltd. 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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