ASX share sell-offs are never ideal. Sometimes they're justified and sometimes the market may be too pessimistic. In such cases, when the market is mispricing a business, it can present a great opportunity to buy in.
It's worth noting here that just because something has fallen doesn't mean it will go back to its former price, or even rise at all.
With the three ASX shares that I'm going to talk about, I believe that in two or three years we'll look back at the current prices and think they were great prices to buy at.
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Universal Store Holdings Ltd (ASX: UNI)
Universal Store owns a few premium youth fashion brands aimed at 16 to 35-year-olds. It has the Universal Store network, THRILLS, and Worship brands, and it's currently trialling the Perfect Stranger brand as a standalone retail concept.
If we look at how far Universal Store has fallen, it's down more than 40% since January 2023. The company gave a trading update in May that said some customers are reducing their spending, which is expected to continue into FY24.
In the first quarter of FY24, the company is expecting to have a total of around 99 stores. Management said the business is driving productivity both in-store and online, and optimising cost efficiencies thanks to its new distribution centre in Eagle Farm, Brisbane.
The company said it will "continue to make the right long-term decisions despite the challenges of near-term sales volatility and a difficult macro environment". I think this is the right strategy to be taking.
I also think the ASX share's profit will bounce back when economic conditions start improving.
According to Commsec, the Universal Store share price is valued at less than 9x FY25's estimated earnings with a possible grossed-up dividend yield of 10.4% for that financial year.
Frontier Digital Ventures Ltd (ASX: FDV)
This second unloved ASX share is a company that owns stakes in various leading online marketplaces in regions like South America and Asia. Many of its marketplaces are for categories like property and vehicles.
'Emerging' markets typically have a lower current e-commerce adoption rate than developed Western countries, so there is plenty of room for revenue to grow simply through more users transacting on the internet in those countries.
The Frontier Digital Ventures share price is down by more than 60% in the past year, despite the company being the most profitable it has ever been.
The ASX share reported in the first three months of FY23, it made an operating cash flow of $0.6 million. Portfolio earnings before interest, tax, depreciation and amortisation (EBITDA) grew 190% to $2 million.
Digital classified businesses can achieve impressive operating profit margins once they scale to a sufficient level.
If the ASX share, and underlying businesses, can keep delivering operating profits (and growth), it may rekindle investor excitement. Over three to five years, I think this could be one of the top performers because of how far it has fallen.
MotorCycle Holdings Ltd (ASX: MTO)
This business claims to be the leading Australian motorcycle dealership and accessories provider. It also provides repairs and servicing. The company has over 40 locations in Victoria, NSW, the ACT, and Queensland and sells all of the top 10 selling brands in Australia.
This ASX share has fallen more than 40% from January 2022, making it much cheaper, even though its operations are now the largest they have ever been.
As the leading motorcycle business in Australia, it has a strong market position and I believe is well-placed to benefit when macroeconomic conditions don't seem so gloomy to the market.
There are a number of positives as to why its earnings could do well in the shorter term. It's working on its costs, acquisitions can contribute a full year of earnings, and its growing number of locations can help offset any same-dealership sales declines in FY24.
If the company is able to achieve the projected earnings per share (EPS) on Commsec, then the price/earnings (P/E) ratio could seem very cheap.
According to Commsec, the MotorCycle share price is valued at 7x FY25's estimated earnings, with a possible grossed-up dividend yield of 9.2%.
