2 cheap ASX shares to buy in May: Experts

Adairs and Best Buy are two ASX shares that have low p/e ratios, which experts rate as buys.

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Key points

  • Experts like these two ASX shares which are valued at low earnings multiples
  • Best & Less is a retailer of affordable apparel for families
  • Adairs is a homewares and furniture retailer

Experts have buy ratings on some ASX shares that have low price-to-earnings ratios. Hence, these shares could be opportunities in May 2022.

Businesses that have low earnings multiples are sometimes viewed as ‘cheap’ if they are expected to grow earnings. This can also lead to a high dividend yield if the ASX shares have a relatively high dividend payout ratio.

Here are two that experts rate as buys:

Best & Less Group Holdings Ltd (ASX: BST)

Best and Less is an apparel retailer which aims its ‘affordable’ products at mums and families.

The company is rated as a buy by the broker Macquarie, with a price target of $4.10. That suggests a possible upside of around 30%.

While the first half of FY22 was affected by COVID lockdowns, there were some statistics that showed improvement. The gross profit margin improved by 210 basis points to 50.8%. The cost of doing business (CODB) decreased by 7% to $115.4 million, however net profit after tax (NPAT) did drop by 21.3% after a 13.8% decline in revenue to $287.5 million.

According to Macquarie, the Best & Less share price is valued at under 9 times FY22’s estimated earnings and around 8 times FY23’s estimated earnings.

Macquarie expects the Best & Less dividend yield to be high. In FY22, the grossed-up dividend yield is expected to be 12.4%. Then, in FY23, Macquarie expects the Best & Less grossed-up dividend yield to be 12.9%.

The cheap ASX share has a number of strategies to keep growing the business including increasing its market share in ‘baby and kids’, improving the womenswear offer, investing in online capabilities and securing new store sites.

Adairs Ltd (ASX: ADH)

Adairs is a retailer of homewares and furniture through three different brands: Adairs, Mocka and Focus on Furniture.

The business has a number of plans to grow its operations.

Adairs says that its larger stores are much more profitable than its smaller format stores. So it’s working on upsizing its stores in certain locations.

The business has opened a new national distribution centre. This is aimed to increase efficiencies, improve stock flow, allow it to fulfil more online orders and save on costs.

It’s aiming to grow its membership numbers because members typically spend more and are more loyal.

The cheap ASX share also plans to expand the Focus on Furniture store network in Australia, as well as grow its online sales.

It’s currently rated as a buy by the broker Morgans. The Adairs share price is valued at 7 times FY23’s estimated earnings. Adairs has a projected grossed-up dividend yield of 13% for FY23.

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 ADAIRS FPO. The Motley Fool Australia owns and has recommended ADAIRS FPO. The Motley Fool Australia has recommended Macquarie Group 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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