This might feel counter-intuitive, but taking a look at ASX shares that have not performed well in recent times can sometimes be fruitful.
Those shares are obviously now cheaper, and the business may still be solid with excellent prospects.
After all, the stock price might have tanked for external reasons that have nothing to do with the internal operations.
In a recent memo to clients, the team at Celeste Funds Management highlighted two such examples that they're still keeping the faith in:
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Astounding record of acquisitions
PSC Insurance Group Ltd (ASX: PSI) shares lost 8.3% during March as it raised $80 million to fund future acquisitions.
The dilution may have contributed to the stock price fall, but the Celeste team feels like the extra cash will eventually become a positive.
"This raising brings net leverage below 2.0x (compared to a stated threshold of 2.0 to 2.5x) and will be focused on Australian and UK commercial broking opportunities," the memo read.
"Since January 2021, PSC has completed 12 acquisitions contributing $16 million in EBITDA at an average multiple of 7.5x."
This astounding history gives analysts at Celeste much confidence.
"Given this track record, their solid pipeline of opportunities and a supportive operating environment, we are confident PSC will deploy the capital in an earnings accretive manner."
PSC Insurance shares are down 4.7% for the year so far, while handing out a 2.44% dividend yield.
Other analysts aren't completely convinced yet, with 3 of the 5 surveyed on CMC Markets rating PSC shares as a hold. The remaining two recommend as a buy.
Is it better to understock or overstock?
There is no sugar-coating this. City Chic Collective Ltd (ASX: CCX) shares have lost half their value in 2022.
Celeste analysts watched in horror over March as the fashion retail stock lost another 13% that month.
"Despite delivering strong top line growth, the market recoiled in response to elevated inventory levels in response to global supply chain disruptions, and sentiment remains weak," the memo read.
"However, prudent inventory stocking will enable CCX to participate in key sales periods like summer in the Northern Hemisphere, with CCX flagging positive early indications."
The alternative to overstocking is understocking and underselling. But this has played havoc with their US rival Torrid Holdings Inc (NYSE: CURV)'s bottom line.
"Ultimately City Chic continues to deliver a quality product with high demand in a growing target market – evidenced by strong growth in online sales, particularly in its key growth market of USA," stated Celeste analysts.
"We believe City Chic is ripe with opportunity despite short-term supply chain issues."
The broader fund management community agrees, with 8 of 11 analysts surveyed on CMC Markets rating City Chic shares as a "strong buy".
