'Ahead of expectations': Why this ASX stock could make you smile in a few years

Sometimes the stock price doesn't reflect the business performance. This is when long-term investors can pounce.

| More on:
A person sitting at a desk smiling and looking at a computer.

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

Some investors experience cognitive dissonance when a business that's seemingly doing well sees its share price plunge.

But it happens all the time.

The cold hard mathematical fact is that the share price has zero correlation to the business. 

It is merely formed by supply and demand for the ASX stock — how much someone is willing to sell it for, which is acceptable to someone else willing to buy it. 

So at any given time there are bargains on the bourse that could shoot up when the market realises it's underappreciating the underlying company.

Here's one current example from the team at the Elvest Fund:

Great result, but valuation down

Johns Lyng Group Ltd (ASX: JLG) shares have had a topsy-turvy year.

From peak to trough and back again, there have been swings of 20% to 30% making its investors nauseous.

It's now down 20% from 12 months ago.

But Elvest analysts, in a memo to clients, explained why they're holding on for dear life despite another dip in November.

"Johns Lyng [shares] declined despite reiterating FY24 revenue and EBITDA guidance of $1.18 billion and $128 million, representing underlying earnings growth of approximately 20% versus FY23."

The annual general meeting provided much encouragement for the coming period.

"AGM commentary highlighted the positive outlook for Johns Lyng Group's recently established USA and Essential Home Services divisions," read the memo.

"Integration of Reconstruction Experts — US, acquired Jan 2022 — is ahead of expectations, accelerating execution of Johns Lyng Group's equity partnership expansion strategy in the much larger US market."

The Elvest team feels like the Essential Home Services unit, especially, has a lot of potential.

"Johns Lyng Group has a new business line that provides significant cross sell opportunities into its Strata Services division, which is the second largest in Australia with over 95,000 lots under management."

The Elvest team is far from alone in its bullishness for the insurance repair services provider.

According to CMC Invest, eight out of 11 analysts currently rate Johns Lyng as a buy.

Motley Fool contributor Tony Yoo has positions in Johns Lyng Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Johns Lyng Group. The Motley Fool Australia has recommended Johns Lyng Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Investing Strategies

A young woman sits on her bed holding a cup of coffee inside her recreational vehicle hired through the Camplify website
Cheap Shares

2 cheap ASX shares to add to your portfolio before they get expensive

I reckon this duo could see their stock prices rocket after they brush off temporary setbacks.

Read more »

a business person in a suit and tie directs a pointed finger upwards with a graphic of a rising bar graph and an arrow heading upwards in line with the person's finger.
Growth Shares

These ASX 200 growth shares could be strong buys in March

Goldman Sachs is feeling bullish about these growth stocks.

Read more »

Happy man holding Australian dollar notes, representing dividends.
Dividend Investing

3 ASX dividend shares to buy for a passive income boost

Analysts believe these shares are top buys.

Read more »

A young man goes over his finances and investment portfolio at home.
Growth Shares

1 ASX growth stock down 30% to buy right now

The market has reacted badly to this ASX 200 company's half-year result. This could be your chance to get in.

Read more »

Woman with headphones on relaxing and looking at her phone happily.
Dividend Investing

How I'd invest $250 a month in ASX dividend shares to target a $24,000 annual second income

Passive income is within the reach of ordinary Aussies, just like you. Yes, I said you!

Read more »

Person handing out $100 notes, symbolising ex-dividend date.
Dividend Investing

How much will Wesfarmers shares pay you in dividends in 2024?

Will Wesfarmers continue to lift its dividends in 2024?

Read more »

Smiling woman with her head and arm on a desk holding $100 notes out, symbolising dividends.
Dividend Investing

Buy NIB and this ASX 200 dividend stock now

Analysts say these shares are buys for income investors.

Read more »

Man holding Australian dollar notes, symbolising dividends.
Dividend Investing

This ASX All Ords stock is predicted to pay a 9% dividend yield in 2025!

Huge cash flow is predicted to keep flowing from this investment.

Read more »