Set to 'quadruple footprint': Expert names taboo ASX share to buy

This business is going gangbusters and is ready to provide nice returns from an industry always in demand.

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Two funeral workers with a laptop surrounded by cofins.

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Death is a life event that everyone goes through, yet not often thought about or spoken about in investment circles.

But there are ASX shares that provide exposure to the largest addressable market of all.

Wilson Asset Management senior analyst Shaun Weick, in a company video, named one recently that he rates as a buy.

"Propel Funeral Partners Ltd (ASX: PFP) is the second largest funeral home operator in Australia, with about 5% market share."

It's not a company often talked about, and Weick was sheepish in endorsing a death stock.

"This is one with fundamentals you don't want to like, but they really do offer a pretty attractive recovery profile."

Share price has doubled, but more to come

The Propel Funeral share price has more than doubled since the March 2020 COVID-19 panic selling trough.

But Weick thinks the journey upward is far from over.

"As people exit lockdown, we're seeing flu rates skyrocketing at the moment," he said.

"We think the organic growth profile of this business is re-accelerating."

An ace up its sleeve is that the industry has pricing power to help it endure high inflation.

"The significant cost escalation we're seeing through inflation out there, we think these guys have an ability to pass that through."

Weick said that Propel has a "very strong" balance sheet, ready to pounce on opportunities that may come up.

"They've got over $300 million in capacity they can deploy into earnings and accretive acquisitions."

The analyst can envisage Propel Funeral to grow enough to catch up with the market leader.

"Listed peer InvoCare Limited (ASX: IVC) is at about 20% market share," he said.

"They've essentially tapped out with the ACCC, so we can see a pathway for Propel to essentially quadruple its footprint over time — so this is a strong buy."

Busted for pretending to be smaller

Professional coverage is scarce on Propel, but at least Bell Potter agrees with Weick. That team rates the stock as a strong buy, according to CMC Markets. 

Last year, two Propel Funeral subsidiaries were fined by the competition watchdog for falsely advertising that they were "local and independently owned".

The misleading words were trying to create an impression that the businesses were part of the local community, according to ACCC deputy chair at the time Delia Rickard.

"We think that it gives them an unfair advantage when local consumers are shopping."

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Propel Funeral Partners Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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