The three ASX shares I'm going to tell you about in this article have fallen significantly, but I think the businesses are rebound opportunities for the medium term.
It's normal for there to be volatility on the ASX. There are different buyers and sellers every day as well as news events regularly hitting (or boosting) market confidence.
Contrarian opportunities can deliver good returns if investors are brave and things go well for the companies. Here are the shares on my radar:
Adairs Ltd (ASX: ADH)
Adairs is a retailer of homewares and furniture through three different brands – Adairs, Mocka, and Focus on Furniture. As we can see on the chart below, the Adairs share price has dropped 60% since June 2021.
Inflation and higher interest rates are likely to impact household finances, which could hurt demand in the shorter term. But I don't think that weak economic conditions are going to last forever. I think this makes the current price an attractive rebound opportunity.
That said, it's unlikely to be a three-month turnaround. Investing is a longer-term endeavour. But I believe within three years, things will look more optimistic for this ASX share and the discretionary retail sector. I'd point to how it recovered during the second half of 2019 as an example of a recovery following weakness (during pre-COVID times).
As well, the business can impress shareholders with a large dividend yield and ongoing store rollout. According to Commsec, it could pay a grossed-up dividend yield of 12.5% in FY23 and 16% in FY25.
Pinnacle Investment Management Group Ltd (ASX: PNI)
Pinnacle is an investment company that partners with skilled investment managers setting up their own businesses. The ASX share can provide the fund manager with services like seed funds under management (FUM), working capital, distribution and client services, compliance, finance, legal, technology, and so on.
As we can see on the chart below, the Pinnacle share price has dropped by more than 50% since November 2021.
It's not surprising that FUM was impacted by falling share markets, and also not surprising that the business is seeing fewer client inflows during this period.
However, it's my belief this uncertain investment environment won't last forever. When share markets get through this rising interest rate period, FUM could return to stronger growth.
I also like that Pinnacle can grow if its affiliates launch new funds, and the ASX share can also invest in new fund managers.
Using the estimate on Commsec, the Pinnacle share price is valued at 18x FY25's estimated earnings. It could also pay a grossed-up dividend yield of 6.5% in FY25.
Frontier Digital Ventures Ltd (ASX: FDV)
Frontier describes itself as an owner and operator of online marketplace businesses in fast-growing emerging markets. It currently has a portfolio of 15 'market-leading' companies that are operating across 20 markets in its three divisions – Latin America, Asia, and the Middle East and North America (MENA).
It's invested in areas like property, automotive, and general classifieds. The ASX share can help its invested businesses with "strategic oversight and operational guidance".
As we can see on the chart below, the Frontier Digital Ventures share price has fallen around 80% since November 2021. Interest rates do, in theory, hurt technology valuations. However, cash flow could be at its strongest point so far.
In its update for the three months to March 2023, the ASX share reported its first quarter of positive operating cash flow of $609,000. All three regions were operating cash flow positive for the third consecutive quarter, highlighting the company's "growing capital self-sufficiency".
Cost optimisation initiatives in 2022 took the earnings before interest, tax, depreciation and amortisation (EBITDA) margin from 3% in the first quarter of 2022 to 11% in the first quarter of 2023.
I think the share price will get a boost from either interest rate concerns dissipating and/or continued (and growing) profitability demonstrated by the company.
