This could be a good time to look at a couple of ASX shares that have been significantly sold off on the chance they could rebound.
It's getting harder to find opportunities after a number of ASX shares have jumped in price. The first six months of the year saw a recovery for a number of larger businesses, while recently we've seen some positive jumps for smaller businesses as they report better-than-expected numbers.
For example, the two stocks I mentioned in this article about a month ago have gone up about 30% and 60% respectively. If only it were that easy to identify investment opportunities all the time!
Sometimes the biggest returns can be found when a stock has dropped considerably and recovers because the market was too pessimistic.
I'm not saying the two ASX shares in this article are the most likely to make big returns — they could just as easily go down. But I'll explain why I think they could do better than the market is expecting.
Image source: Getty Images
Inghams Group Ltd (ASX: ING)
Inghams is one of the largest poultry businesses in Australia. In the first half of FY23, it achieved group core poultry volume of 235.7kt, so we're talking about a lot of chicken.
The Inghams share price has dropped by around a third since September 2021.
This is understandable as the business has been dealing with inflation of costs across a variety of areas such as feed, fuel, transportation, packaging, and ingredients.
Inghams said in its half-year result that group net selling prices "grew strongly" during the first half. The company said it "remains focused on customer pricing levels 'appropriately' reflecting" ongoing feed and inflationary cost pressures and will "pass on further price increases as required".
I think the increasing prices will help the company's revenue and profit in the coming reporting periods, and it may be more positive than some investors are expecting.
The company also revealed it's going to invest in processing technology and automation, which will help future-proof the business. I believe this could help improve Ingham's profit margins.
According to profit estimates on Commsec, the Inghams share price is valued at less than 13x FY24's estimated earnings and less than 10x FY25's estimated earnings. It could pay a grossed-up dividend yield of 7.7% in FY24.
City Chic Collective Ltd (ASX: CCX)
City Chic is an ASX retail share that sells clothes, footwear, and accessories to plus-size women in Australia, New Zealand, the UK, Europe, and the US.
The City Chic share price has dropped around 80% in the past 12 months and more than 90% since September 2021. Ouch.
Its most recent trading update for the 45 weeks to 14 May 2023 showed sales were down 15% to $262 million, but up 16% compared to FY21.
However, it noted that sales in April and May were "improved" and returning to the trend seen in January and February, where revenue fell by 17%. This is indeed a better figure considering sales in the total second half to that time were down almost 26%.
In the first 19 weeks of the second half of FY23, the gross profit margin was down 18.8 percentage points.
It noted that UK operating conditions have been "exceptionally challenging and heavy discounting is required to drive demand".
But City Chic said that it's accelerating its inventory unwind. This is expected to drive cash flows and reduce the inventory balance at the end of FY23 to less than $100 million. This is forecast to further reduce in FY24 and continue to "drive promotional activity, with margins likely to remain soft" in the first half of FY24.
It's expecting to have a stronger inventory position in the second quarter of FY24, with 'newness' ready for the key trading period.
The ASX share has outlined a number of logistics areas where it's looking to reduce costs by more than $10 million per year.
City Chic is employing a number of strategies to try to return to profitable growth through FY24. I think if the company's commentary about profit is promising, then its share price could bounce. Certainly, at the moment, investors have very few expectations of the business.
