Ask A Fund Manager
The Motley Fool chats with the best in the industry so that you can get an insight into how the professionals think. In this edition, Capital H Management portfolio manager Harley Grosser casts his eyes over three ASX shares that are now going for a huge discount.
Bargain buy or value trap?
The Motley Fool: Let's examine three ASX shares that have been devastated this year, and see if you think each of these fallen stars is now a bargain to pick up or if you'd stay away.
The first one is Mighty Craft Ltd (ASX: MCL), a small-cap ASX stock that's plunged about 40% since last Easter.
Harley Grosser: Mighty Craft's an incubator and investor in beverage brands. We have met with them and quite like the business. Their star brand is Better Beer, which was started by the social media group Inspired Unemployed, which has got a massive following online. They just actually announced a restructure there, but Mighty Craft [still] owns 33% of Better Beer.
So we don't own Mighty Craft at the moment. But I think if you watch the performance of Better Beer, that's probably the key there. Because if they continue on this trajectory, which has been just phenomenal growth every month, then MCL's a relatively cheap way to gain exposure there.
I think there were a couple of options — [one] was to sell their stake and cash out, but it seems like Better Beer's decided to raise more money and go even harder. So we don't own it, but we'll keep watching how Better Beer performs.
MF: I'm not a beer drinker myself, so I don't fully understand how such a small brand can take off so fast.
HG: Yeah, me too. I don't drink it either, but I have a lot of mates that all of a sudden have stocked their fridges with Better Beer, so they're doing something right.
MF: Next one is Dusk Group Ltd (ASX: DSK), which is down about 40% since last Easter as well.
HG: Yeah, they're a candle retailer and they've got a good business in their own niche.
We took a view that we would just be avoiding retailers completely, probably around April of 2022 when we started to get concerns around inventory positions. And to be fair to retailers, it must have been a very hard time to manage inventory from the switch from in-store to online, then back now to in-store.
But on the other side of that, we're happy to start looking at opportunities, and I think Dusk is a good brand and it's a business that we would own at the right price.
Their first half numbers were still a little bit messy as everything normalises, but it's on our radar as one we would buy if it got to the right price. But it's not there yet for us.
MF: The third one is Redbubble Ltd (ASX: RBL), which has really taken a hammering. It's down 93% since the start of last year. What do you think?
HG: Yeah, we never invested in Redbubble. Years ago we looked at it and we did talk to some of the artists that used the platform, and we didn't think it was going to be a long-term winner.
And then COVID just proved us really, really wrong there. The stock just took off. Obviously, since then, it's all unwound.
For us, I know it's probably not the perfect answer, but we like to invest in [a] business that we can understand and then have a reasonable chance of forecasting. So Redbubble's been smashed and it might be the bargain of century, but it's too hard for us to try to model out what it looks like in three, four, five years.
So it might look cheap, but it's just one that we have to put in the "too hard" basket and say no to.
