Bear to bull: The ASX shares that could bounce back the strongest

These stocks have fallen hard, I'm optimistic they can make good returns.

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Some ASX shares have seen significant declines over the past year. While this is painful for shareholders, new investors looking for a bargain may have opportunities.

Six months ago, there were plenty of cheap ASX shares amid a market fearful about inflation and interest rates. Now, it's harder to find many stocks that have fallen heavily over the past 12 months — and there are genuine reasons why many have dropped.

If we can identify a fallen stock that can rebound, there could be a good opportunity. For example, a 50% fall in a share price from $10 to $5 is a very big decline. If that share price can just recover back to the original $10 share price, it'd be a 100% rise from $5 for new investors. That's not guaranteed to happen, though.

The trick is to determine which declines with ASX shares are temporary/cyclical and which ASX shares have been permanently hurt. The temporary sell-offs are where we can find contrarian recovery plays. In my opinion, the stocks below have a decent chance of recovery.

KMD Brands Ltd (ASX: KMD)

KMD is an apparel and footwear business that owns three brands: Kathmandu, Oboz and Rip Curl. In other words, it has a business for winter gear, one for beach and ocean items, and a hiking boots (and other shoes) operation.

As the chart below shows, the KMD share price has fallen 50% over the past 12 months and is almost 70% lower since October 2021.

Its recent FY24 first-half result confirmed what the company has been talking about for a while. Weak consumer sentiment led to a 14.5% fall in sales to $468.6 million, while the underlying net profit turned into a net loss of $6.9 million.

KMD advised that warm weather in Australia and an overreliance on winter-weight products led to the company's disappointing first half.

However, things are starting to look up – sales for February 2024 were down only 3.5% year over year. I don't know how warm the upcoming winter will be, but the company is more optimistic about FY25.

The wholesale customer inventory reduction cycle is expected to end this financial year, and management is positive about the wholesale channel for both Rip Curl and Oboz.

According to Commsec estimates, the KMD share price is valued at just under 7x FY26's estimated earnings with a possible dividend yield of 7.6%.

Accent Group Ltd (ASX: AX1)

This ASX share wants to be the market-leading, digitally integrated retail and distribution business in the "performance lifestyle market for footwear, apparel and accessories across Australia and New Zealand".

It has 17 distribution agreements with global brands, including Vans, Hoka, Kappa, Skechers, Herschel, Sebago, Merrell, CAT, Saucony, Dr Martens, Palladium, Ugg, Autry, Superga, and Timberland.

The company also owns several businesses, including Nude Lucy, Stylerunner, Lulu and Rose, Hype, Glue Store, The Athlete's Foot, and Platypus.

The Accent share price has dropped around 30% over the past year, as we can see on the chart below, making it much cheaper to buy a piece of the ASX retail share.

Sales have been challenged over the past year or so amid the high cost of living, but I believe the ASX share has an appealing outlook with a growing store network. Depending on what happens next, an improving retail picture could be just around the corner.

I recently invested in Accent shares myself because I'm optimistic the company is facing a cyclical situation that can improve.

Motley Fool contributor Tristan Harrison has positions in Accent Group. 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 recommended Accent Group. 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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