Many investors are scared off S&P/ASX 200 Index (ASX: XJO) shares that have recently plummeted.
As much as this is human nature, this is irrational behaviour.
Stocks have no memory of what's happened in the past. The only thing that matters is their future potential.
Quite a few ASX 200 shares have fallen more than 20% over the past 12 months. Here are some examples:
- Domino's Pizza Enterprises Ltd (ASX: DMP): down 24%
- Endeavour Group Ltd (ASX: EDV): down 25%
- ASX Ltd (ASX: ASX): down 29%
- Ramsay Health Care Ltd (ASX: RHC): down 24.5%
- Lendlease Group (ASX: LLC): down 25%
Are these bargain buys at the moment or are they value traps?
Let's break down two of them:
Bad results, shares up
Domino's is a topical example with the company reporting its 2023 financial results just on Wednesday.
The share price for the pizza maker had been on a shocking run, falling more than 70% since September 2021.
Then on Wednesday morning, Domino's Pizza revealed a disaster of a financial year, with net profit plunging 74.4%, earnings per share (EPS) down 26.9%, and the dividend diving 29.7%.
And guess what — the stock soared 11.8% that day!
It seems wise investors were looking at the restructure and cost-cutting that Domino's is undertaking and decided it was a bargain.
Domino's chief Don Meij conceded there would be job losses, and he himself would take on additional duties.
"Wherever a global function sits within a market, the majority of our leaders will now 'double hat' so there is one decision maker, and my role is no exception – effective immediately I will be acting as both the group and ANZ CEO for Domino's," he said.
"These decisions, while challenging, will ensure we have a stronger foundation for future growth, both for our company and our franchisee partners."
Good results, shares down
Endeavour Group went the other way this reporting season.
Last week, the alcohol retailer and hotels operator revealed that it had boosted earnings before interest and tax (EBIT) to the tune of 10.7% while net profit after tax (NPAT) was also up 6.9%.
Then, would you believe it, the market sent the Endeavour share price 4% down that morning.
Perhaps a lack of 2024 guidance spooked investors, or they were expecting more out of the 2023 results.
The Motley Fool's Sebastian Bowen has taken advantage of the dip to buy.
"The recent pricing on this company is a compelling buying opportunity for a long-term investor. We have a company that houses two of the strongest brands in alcohol retailing in BWS and Dan Murphy's," he said.
"Its resilient earning base and consumer staples nature should protect Endeavour from both inflation and recessions going forward."
Moreover, the stock is paying out a fully franked dividend yield of around 4%.
"I was happy to pile into this company while other investors were running away," said Bowen.
"Only time will tell if it was the right move, but I'm confident in my decision and expect to at least have a shot at a market-beating investment here."
