3 ASX All Ordinaries shares I don't think will stay cheap for long

Here's why I'm backing these three compelling companies.

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Key points

  • Retailer Baby Bunting is seeing a recovery of its profit margins, while growing its store network
  • Fund manager Australian Ethical is seeing ongoing fund inflows, helping grow its revenue potential
  • All Ordinaries ASX share Universal Store is growing revenue and profit, and continues to expand its store network

The All Ordinaries (ASX: XAO) is a great place to find ASX shares that are smaller and which could deliver strong returns. In this article, I'm going to talk about three ASX All Ordinaries shares that could be great value.

There are some All Ordinaries ASX shares that have gone through a lot of pain over the last 18 months, while others may be cheap simply because of the low price/earnings (P/E) ratio they're trading at.

Let's look at the three opportunities, why I think they're cheap and what could be the catalyst to drive them higher.

Baby Bunting Group Ltd (ASX: BBN)

Baby Bunting is a leading retailer of baby products such as prams, toys, car seats, clothes, blankets, furniture and so on.

As we can see on the Baby Bunting share price graph below, it's down over 60% in the past two years.

The problem for Baby Bunting has been pricing competition from peers, which has led to lower margins as the business aims to win on price. The All Ordinaries ASX share has reported lower margins, which hurt profit.

In its trading update released with the FY23 half-year result, it revealed that the gross profit percentage for January was "in line with the company's plans and up on the prior year." This seems to me like a promising update for a profit turnaround in FY24.

FY23 may not be as good as profitable as previously hoped, but I like that the business is growing its store network in Australia, expanding into New Zealand, working on improving its operational efficiencies and launching a marketplace.

I think that the Baby Bunting share price will be boosted when the market sees that its profit is truly recovering. According to Commsec, it's valued at just 8 times FY25's estimated earnings with a possible grossed-up dividend yield of 11.75% for that year.

Australian Ethical Investment Ltd (ASX: AEF)

Australian Ethical is a fund manager that offers managed funds and superannuation to people that want their investments to have a high level of ethics, which avoids sectors like fossil fuels and is invested in businesses making a positive difference to the world.

The Australian Ethical share price is down around 80% from 31 December 2021, as we can see on the chart below.

The All Ordinaries ASX share has suffered amid share market volatility – its funds under management (FUM) suffer when share market values decline. The higher interest rate seems to have hurt the company's own valuation as well.

Australian Ethical continues to see net inflows, thanks to the (mandatory) contributions of superannuation. In the three months to 31 March 2023, it saw net flows of $0.1 billion for the superannuation segment, while the managed fund net flows were $0.00 billion (the inflows and outflows were balanced).

After recently taking on Christian Super members, the company now has $8.77 billion of FUM. This strong and growing level of FUM will help the business grow profit in the future years.

I think the Australian Ethical share price will rise when the markets start climbing after all of the volatility and declines we've seen over the last couple of years.

Universal Store Holdings Ltd (ASX: UNI)

The Universal Store share price has taken a pounding this morning, shedding more than 21% after a disappointing trading update. It marks a 61% decline since the share price peaked in November 2021, as we can see on the chart below. The company is a retailer of premium youth fashion brands.

The plunge is despite the business continuing to report good growth. Indeed, in this morning's announcement to the ASX, the company said it was still on track to deliver record sales and material growth in EBIT compared to FY22. However, it noted customers had reduced their spending during April and May.

In the FY23 first half, it saw total sales growth of 34.5%, while underlying earnings before interest and tax (EBIT) increased 43.2% to $28.5 million.

In the first seven weeks of the second half of FY23, Universal sales were up another 13.6%.

I don't think this business is at risk of higher interest rates than other retailers, due to its focus on 16 to 35-year-olds. Not as many people that age own a property according to ABS data.

This business looks really cheap to me, particularly as it rolls out more stores for its different brands (including Perfect Stranger) which can help drive total sales higher, even if same-store sales don't grow as much over the next year.

According to Commsec, the Universal share price is valued at 7 times FY25's estimated earnings with a grossed-up dividend yield of 12% for that year. I believe the Universal Store share price will climb as investors see profit growth, bearing in mind its cheap P/E ratio.

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. has positions in and has recommended Australian Ethical Investment and Baby Bunting Group. The Motley Fool Australia has recommended Australian Ethical Investment and Baby Bunting Group. 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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