I think these ASX growth shares are so cheap, they're steals

Here's why I love the look of these two stocks.

| More on:
A man wearing glasses sits back in his desk chair with his hands behind his head staring smiling at his computer screens as the ASX share prices keep rising

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

ASX growth shares with plenty of potential to become much bigger are really attractive opportunities to me. The two stocks below still seem really cheap. Indeed, they look like bargains.

I love having the chance to 'buy the dip' on businesses that are choosing to become operationally larger despite the uncertain conditions. I think they'll come out the other side in a much better place.

Let's get into why I like these two stocks.

Lovisa Holdings Ltd (ASX: LOV)

Lovisa is an ASX retail share that sells affordable jewellery to younger shoppers. The Lovisa share price is down 20% in 2023 to date and has fallen over 30% from April 2023, as we can see on the chart below.

I think the opportunity here is with the enormous rollout of stores the company is embarking on.

The business has around 170 stores in Australia and had approximately 800 outlets globally at the end of FY23.

At that time, it had 190 stores in the US and has only recently entered several new markets including Canada, Mexico, Spain, Hong Kong, Taiwan, and plenty more.

At the current rate Lovisa is growing its store numbers, I believe the ASX growth share's global network can double in size by FY28. This could be a massive financial tailwind and enable the business to perhaps double its profit and dividend by FY28 as well. There's also a fair chance it could enter mainland China in the next 12 months, which would be a huge potential market to tap into.

Looking at the projections on Commsec, the Lovisa share price is valued at 19x FY25's estimated earnings and it could pay a partially franked dividend yield of 4.3% in FY25.

Pinnacle Investment Management Group Ltd (ASX: PNI)

Pinnacle is a business that invests in fund managers who are starting their own funds management businesses. Pinnacle can assist them with a number of areas like seed funding, distribution services, legal, compliance, and so on.

Since 1 August 2023, the Pinnacle share price has fallen around 15%, and it's down 50% from November 2021, as we can see on the chart below.

I think this is a great business to pick up when markets are uncertain. When declines happen, it hurts both the existing funds under management (FUM) and may also make people hesitant about investing with fund managers, affecting net inflows. I believe the opposite will be true when conditions seem more positive.

Pleasingly, a significant amount of underlying funds have delivered long-term outperformance of their respective benchmarks. Pinnacle is seeing underlying net inflows – in the FY23 second half, it experienced $3.1 billion of net inflows.

There are a few positives that could drive the ASX growth share's earnings. Existing fund managers can keep experiencing inflows for existing funds, they can start new funds, or start new investment strategies (for example ASX small caps). Plus, Pinnacle is adding to its portfolio of management investments, one of the newest is a Canadian-based manager.

Since the company started paying a dividend in 2016, it has grown its dividend almost every year, aside from 2020 when it maintained its payout.

According to projections on Commsec, the Pinnacle share price is valued at under 20x FY25's estimated earnings with a possible FY25 grossed-up dividend yield of 6.5%.

Motley Fool contributor Tristan Harrison has positions in Lovisa and Pinnacle Investment Management Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Lovisa and Pinnacle Investment Management Group. The Motley Fool Australia has positions in and has recommended Pinnacle Investment Management Group. The Motley Fool Australia has recommended Lovisa. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Opinions

Woman with $50 notes in her hand thinking, symbolising dividends.

The top ASX shares I'd buy with $500 right now

I think putting $500 into any of these ASX shares today would be a great move.

Read more »


School-leaver to retiree: ASX stocks I'd buy for each age bracket

If life is a journey, here are the stocks I'd pick up along the way.

Read more »

An Australian farmer wearing a beaten-up akubra hat and work shirt leans on a fence with livestock in the background and a blue sky above.
Dividend Investing

3 reasons I'd buy this high-yield ASX dividend share

I like the income this stock is throwing off.

Read more »

A mature age woman with a groovy short haircut and glasses, sits at her computer, pen in hand thinking about information she is seeing on the screen.

I'd invest $10,000 into these excellent ASX shares for the long-term

These stocks are very high-quality ideas.

Read more »

Miner and company person analysing results of a mining company.

The pros and cons of buying Pilbara Minerals shares right now

Could this beaten-up lithium giant be a contrarian opportunity?

Read more »

Three women athletes lie flat on a running track as though they have had a long hard race where they have fought hard but lost the event.

3 things I look to avoid when buying ASX shares

Staying away from the losers could help my returns.

Read more »

A woman sits on sofa pondering a question.

I'm close to buying this beaten-up ASX 300 share next

Here's a company I think is well worth considering.

Read more »

A senior couple discusses a share trade they are making on a laptop computer

I think these are 2 of the strongest ASX ETFs Aussies can buy right now

ETFs can offer both diversification and quality.

Read more »