2 undervalued ASX shares I think are set for a bull run

I think both of these ASX shares are primed to do well.

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I'm a fan of both of the ASX shares I'm going to cover in this article. I think they're undervalued and could do well in 2024 and beyond.

ASX small-cap shares could still be an ideal hunting ground after various parts of the share market have rallied this year, or even in the last few weeks. Small businesses haven't seen that recovery in sentiment, for whatever reason.

But, just because a company hasn't performed well this year doesn't mean it's not going to in the future, whether that's regarding the share price and/or the financials. Here are two undervalued ASX shares I think are primed to perform in 2024.

Pacific Current Group Ltd (ASX: PAC)

Pacific Current is a business that takes stakes in investment managers from around the world, and helps them grow with expertise and some capital.

Some of its portfolio includes GQG Partners Inc (ASX: GQG), Victory Park, ROC Partners, Astarte and Pennybacker.

Fund managers are the types of businesses that can be very volatile – they can fall more than the market when the market goes down and rise more when the market goes up. That's because their funds under management (FUM) – a key input for earnings generation – will usually be impacted by whether share markets are going up or down in value.

Pacific Current's aggregate ownership-adjusted FUM has steadily grown over the last five years thanks to investment performance and FUM inflows.

With interest rates now (almost) at the peak, I think 2024 could see a recovery of investors contributing more money to the Pacific Current fund managers.

The estimate on Commsec suggests Pacific Current could generate earnings per share (EPS) of 70.2 cents and pay a dividend per share of 47.4 cents. This suggests the Pacific Current share price is valued at 12 times FY24's estimated earnings with an unfranked forward dividend yield of 5.6%. I think it's an attractive undervalued ASX share.

Reject Shop Ltd (ASX: TRS)

Reject Shop is a discount retailer that sells "high-quality private brands and sells products from Australia's most trusted brands including Cadbury, Tresemmé, Tontine, Nivea, Pepsi, Finish, Omo, Uncle Tobys" with a "single purpose in mind…to help all Australians save money." The company says it has around 380 locations.

I think the business is in a good position to help struggling households save money in the current environment – who doesn't like a bargain?

Reject Shop said at its annual general meeting that comparable store sales growth in the first 15 weeks "continues to be up on the prior corresponding period and is tracking" to the company's expectations. It's also working on growing its profit margin in FY24, despite inflationary pressures.

It's also expecting total sales growth in FY24 to be supported by new store openings – it's expecting to open 15 and close between eight to ten.

I think this is an undervalued ASX share – businesses with a low valuation that grow earnings can be attractive.

According to Commsec, it could generate 40.6 cents of EPS and pay a dividend per share of 22 cents in FY25. That puts the Reject Shop share price at 13 times FY25's estimated earnings with a potential grossed-up dividend yield of 6.1%.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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