The legendary investor Benjamin Graham, who once taught Warren Buffett, famously said, 'In the short term, the stock market is a voting machine, but in the long term, a weighting machine'.
Right now, the stock market has voted the share prices of two ASX retail shares down.
But I think the market will eventually weigh up their prospects and bounce the shares right back up. Let's get into why.
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Rebound-ready: 2 ASX retail shares I want to snap up
Adairs Ltd (ASX: ADH)
Adairs is an ASX 200 retailer that specialises in homewares. It is a popular destination for customers seeking bed linens, towels, pillows and other home furnishings. The Adairs share price has been through the wringer over the past year or two, as you can see below:
This is a share that, at Thursday's closing price of $1.38, is down more than 70% from its 2021 peak of almost $5 apiece. But in my view, this places the company well and truly in oversold territory. Adairs is on the nose right now thanks to its consumer discretionary nature.
Investors are probably assuming that the cost of living crunch that the country is currently enduring makes it less likely that consumers will splash out at their local Adairs store.
Now this might be true. Adairs recently posted some disappointing numbers that confirmed a sales slowdown.
However, the recent pessimism has cut Adairs' price-to-earnings (P/E) ratio down to an almost laughably low 4.93. I fully expect Adairs to be able to survive any upcoming recession or economic slowdown and emerge stronger on the other side. Thus, I think this share price will look absurdly low in a few years' time.
What's more, this share price fall has pushed Adairs' fully-franked dividend yield to more than 13%. That is looking mighty fine to me.
Dusk Group Ltd (ASX: DSK)
Dusk is another ASX retail share that has suffered a similar fate in recent years to that of Adairs. Back in July 2021, the shares of this candle and fragrance purveyor were trading at around $4 each. But today, those same shares are less than $1, going for 99 cents at the close on Thursday.
The same concerns that investors appear to have with Adairs are pushing Dusk shares down to their current level, in my opinion.
But once again, I think the markets are getting too carried away with pessimism right now. Dusk is currently trading on a jocular P/E ratio of 3.77. That is so low that it is arguably pricing in bankruptcy for this company, with Dusk's trailing (and fully franked) dividend yield now more than a rather inconceivable 16%.
Dusk is also experiencing a bit of a sales slump, with an ASX update last month confirming falling sales projections. But again, I see this as a short-term issue and not the bankruptcy spiral that the markets seem to be pencilling in.
As such, I am happy to own Dusk shares and expect the company to bounce back with a vengeance over the coming years.
