Cheap ASX shares can be really good investments if they grow earnings over the longer term. I've got my eyes on a few names that could be exciting.
Businesses can sometimes trade at a lower value than what they're truly worth. Market conditions and volatility can open up contrarian opportunities.
Going against the crowd isn't always a good idea, but occasionally, the market can be too pessimistic.
I'll outline two ASX shares that seem like their forward price/earnings (P/E) ratio is too cheap.
AGL Energy Ltd (ASX: AGL)
AGL is one of the largest energy generators and retailers in the country. The AGL share price is close to 50% lower than where it was five years ago.
The company is benefiting from growing energy demand in Australia, which data centres, AI, electric vehicles, and population growth could drive. AGL could also benefit from Kaluza, a tech platform that "digitises and simplifies energy billing, reduces costs to serve and enables faster product innovation." AGL has made an investment in the software platform Kaluza and is utilising its technology within its own operations.
It was reported by the Australian Financial Review, that data centres are already taking up 5% of Australia's electricity. Potential rapid construction around Australia may mean data centre capacity could more than double by 2030, leading to an increase from 1,050MW to 2,500MW. If that happens, it would represent a growth of 13% per year.
How cheap is the ASX share?
The broker UBS suggests AGL could generate earnings per share (EPS) of $1.17 in FY24 and $1.32 in FY28. That puts the current AGL share price at 9x FY24's estimated earnings and 8x FY28's estimated earnings.
Accent Group Ltd (ASX: AX1)
I believe it can be very useful to consider ASX retail shares during difficult economic conditions because, in my opinion, it's unlikely that tough times will last forever. High inflation and elevated interest rates will hopefully reduce sooner rather than later.
Therefore, a sell-off due to a temporary situation could be a good time to buy this cheap ASX share. As the chart below shows, the Accent share price has dropped more than 20% since April 2023.
The shoe retailer works with a number of global brands like Skechers, Hoka, and Ugg, and the ASX share's earnings could keep increasing over time as the company rolls out more stores across various brands.
With a larger store network, it is increasing its profit-making potential when conditions do rebound. It was expecting to open at least 20 new stores in the second half of FY24. Keep in mind it's adding new stores for its owned brands, including Nude Lucy and Stylerunner.
According to the forecast on Commsec, the Accent share price is valued at 12x FY26's estimated earnings and could pay a grossed-up dividend yield of around 11% in the 2026 financial year.
