There is much volatility on the ASX share market right now, as with markets around the world. I think this could prove to be a fine time to go hunting for cheap ASX share opportunities.
Indeed, one of the world's best-performing and wisest investors Warren Buffett has offered his wisdom on times like these:
Be fearful when others are greedy, and greedy when others are fearful.
Certainly, it could be useful to think with a contrarian mindset. When investors sell off an entire sector or even the entire share market, it could be a sign of longer-term opportunity. It could also be a time to be greedy with sectors that are cyclical.
Retail businesses aren't always going to have booming sales and profits. When a downturn is seemingly approaching, and share prices drop, it could be fruitful to find some cheap ASX shares that could see a turnaround in the medium term.
While share prices may see the bottom of their decline sooner rather than later, it could take a while for net profits to reach the bottom of their cycle. Share prices often move harder and earlier than companies' financials.
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Adairs Ltd (ASX: ADH)
Adairs is a retailer of homewares and furniture with brands like Adairs, Mocka, and Focus on Furniture.
How much pain are we talking about for the Adairs share price? The ASX share is down by 57% in 2022 at the time of writing. That's a very large fall. It's similar to the plunge seen during the worst of the COVID-19 crash in March 2020. However, I don't think things look as dire now as they seemed then.
For one, shops are now open (with no lockdowns). People still need furniture, bedsheets, and so on. Adairs is still working on plans for growth including opening more stores, upsizing some stores, growing online sales, offering more products, and so on.
The broker Morgans thinks that the Adairs share price is valued at just six times FY23's estimated earnings with a potential grossed-up dividend yield of 14.7%.
City Chic Collective Ltd (ASX: CCX)
City Chic is a leading retailer that sells clothes, footwear, and accessories to plus-size women. The ASX share has a large presence in Australia, the UK, and the US, while also having a small presence in Europe.
It has been a harsh year for the City Chic share price, which has dropped by 73% in 2022. It last traded at $1.48 a share. While I'm not expecting the share price to get back above $6 any time soon, I think that this much-lower valuation now includes a lot of pessimism.
While FY22 did see elevated inventory as well as negative cash flow (due to a large increase in inventory), it also saw growth. Sales revenue grew by 39% to $369.2 million, while underlying earnings before interest, tax, depreciation and amortisation (EBITDA) went up 11.3% to $$7.1 million and underlying net profit after tax (NPAT) increased by 14.5% to $28.5 million.
The ASX share is expecting profitable growth in FY23, with price increases to offset rising costs while also growing market share.
Macquarie's estimates for the retailer suggest that the City Chic share price is valued at 12 times FY23's estimated earnings and 11 times FY24's estimated earnings.
The broker also thinks that City Chic could start paying a dividend in FY23, with a potential grossed-up dividend yield of 8.7%.
