A wide range of ASX shares are down significantly over the last year or so. As such, value investors may be able to find some very cheap ASX shares in the current environment.
Inflation and higher interest rates have hit both valuations and investor confidence about where earnings are headed for many businesses.
While some businesses are going to see a bit of an earnings dip, the level of share price pain may be too much when considering the long-term potential of these businesses.
In my view, here are two very cheap ASX shares.
Dusk Group Ltd (ASX: DSK)
Dusk is an ASX retail share with a market capitalisation of more than $120 million according to the ASX. The company describes itself as an Australian specialty retailer of home fragrance products.
It sells Dusk-branded products from its physical stores and through its website. The products are designed in-house and exclusive to the company. Some of the products the business sells include candles, ultrasonic diffusers, reed diffusers, and essential oils, as well as fragrance-related homewares.
Since July 2021, the Dusk share price has dropped around 50%. In the first 19 weeks of FY23, the business saw total sales growth of 23.9%, though this was put down to store closures in the first half of FY22 due to COVID-19. The gross profit margin was "in line" with the prior year.
It opened five new stores in Australia in time for Christmas, with another three or four expected to open in the second half.
Using the estimates on Commsec, the Dusk share price is valued at nine times FY23's estimated earnings with a possible grossed-up dividend yield of 12.3%. That makes it seem like a cheap ASX share to me. The current projections suggest the business could grow its earnings and dividend in FY24.
City Chic Collective Ltd (ASX: CCX)
City Chic is a former market darling that has fallen very hard. It's down close to 90% since September 2021.
The business is a retailer of clothing, footwear, and accessories to plus-size women.
It has a growing global presence. The company has the City Chic brand in Australia, Evans in the UK, and Avenue in the US.
The business is currently having a rough time. In the 26 weeks to 1 January 2023, the company saw global sales revenue of $168.6 million. This would represent a decline of 8% year over year, up 38% over FY21.
Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) is expected to be a loss of $2.5 million to $4 million.
The company has had to discount products, hurting the gross profit margin, to "stimulate demand". It's also resulting in a higher cost of doing business (CODB) as a percentage of sales for the first half of FY23 compared to the prior corresponding period.
The one positive was that inventory is expected to be between $163 million to $164 million at the end of the half, ahead of target. By the end of FY23, it's aiming for between $125 million to $135 million.
Profitability is expected to return in FY24 according to Commsec, with the City Chic share price valued at 20 times FY24's estimated earnings and 14 times FY25's estimated earnings. I think this makes the business a cheap ASX share after its heavy fall.
While the last several months have been tricky, I think the business will be able to turn it around and achieve good growth in the northern hemisphere as long as it keeps investing in the business.
