2 ASX stocks that haven't yet caught up with 4 years of booming business

Sometimes the share price remains low even though the underlying company is going gangbusters. That makes them a tempting buy.

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It might surprise some investors that, despite the abundance of information in modern times, ASX stock prices can still fall out of sync with business performance.

This could happen for a variety of reasons.

The market might be overly fearful about a small part of the business. The sector might be out of favour due to the current economic conditions. The company might even have a short-term image problem.

Whatever it is, such a situation can provide a golden buying opportunity for shrewd investors.

"If a business does well, the stock eventually follows," famous US investor Warren Buffett once said.

The idea is that, over the long run, the share price will catch up with the business performance.

Keeping this in mind, the team at the Forager Australian Shares Fund reckons two of its holdings are now ready to do exactly that.

Let's check them out:

'Valuation is significantly more attractive today'

Mining technology services provider RPMGlobal Holdings Ltd (ASX: RUL) is the Forager team's largest holding.

The business has gone absolutely gangbusters since 2020.

"Annual subscription revenue was just $10 million in the 2020 financial year. By 2023 it had nearly quadrupled to $39 million," read a report to Forager clients.

"Profit before tax has become meaningfully positive and is due to climb again in 2024 as operating leverage kicks in."

However, the stock price simply does not reflect this progress, and is an even bigger bargain now than when the Forager analysts first bought in.

"RPM's market capitalisation is only 34% higher than in 2020. The valuation is significantly more attractive today, and we already thought it was a bargain three years ago."

The great perpetual attribute for RPMGlobal is the stickiness of the solutions they provide to their customers.

"Many of the products are industry standard and key to the operations of a mine site, so very few clients stop using them.

"The business is run by an aligned management team, has net cash on the balance sheet and has been continuously buying back shares."

These ASX stocks have unjustifiably halved

Viva Leisure Ltd (ASX: VVA) shares are Forager Australian Fund's fourth largest investment. 

The company owns and operates gyms around Australia and, like RPMGlobal, has made huge strides since 2020.

"Three years ago, the gym owner had just over 100k paying members. It now boasts more than 186k," read the Forager report.

"Revenue had rebounded to $6.7 million a month post the first of the COVID lockdowns. That number was last pegged at $13.6 million. Furthermore, profit margins have climbed from 15% to 21%."

Despite this, the market has treated Viva shares even more harshly than RPMGlobal.

"Viva trades at half of its share price at the end of 2020," stated the analysts.

"Viva's valuation multiple has fallen to just eight times our estimate of next year's net profit."

But the Forager team is sticking by the small cap, because it has more catalysts coming.

"A few projects, like club upgrades, technology rollouts and vending machines at clubs will benefit the business in the 2024 financial year.

"And maturity has also led to larger and more flexible bank funding, providing further organic and acquired growth opportunities."

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended RPMGlobal. The Motley Fool Australia has recommended RPMGlobal. 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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