Some ASX shares were heavily sold off during the August reporting season due to weak updates from those companies. But brave investors may find opportunities amid the chaos.
I don't believe that a challenging period in the short term should result in a permanent devaluation of a business, so significant sell-offs can present good opportunities, in my view.
It's not always a good idea to buy a beaten-up ASX share, though, because sometimes the shares can fall further if the business is experiencing a long-term structural decline.
But that's not the case with the ASX shares below, which is why I think they're buys.
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Johns Lyng Group Ltd (ASX: JLG)
Johns Lyng specialises in providing repair and restoration services after events like storms, floods, fires, and so on. In the last month, the Johns Lyng share price is down around 35%.
The company's FY24 result missed the company's own guidance and included a significant reduction in catastrophe earnings.
However, the company experienced some positives, including a 20.2% rise in insurance building and restoration services (IB & RS) earnings before interest, tax, depreciation and amortisation (EBITDA) to $111.2 million and a 37.2% increase in underlying profit to $55.9 million.
The business is expecting more overall BAU EBITDA growth in FY25 but at a slower growth rate compared to BAU revenue growth.
I think the company has a lot of growth potential in Australia and the US, and a resurgence of catastrophe work in the medium term could lead to investors valuing the business more highly again.
Collins Foods Ltd (ASX: CKF)
Collins Foods shares are down 14% in the past month after the operator of KFCs in Australia and Europe gave a disappointing trading update.
While total Australian KFC sales were up 2.5% in the first 16 weeks of FY25, persistent inflation has impacted the cost of sales, labour, and energy. The ASX share is expecting its EBITDA margin to reduce.
However, Collins Foods expects to continue opening more KFC locations in Australia and Europe, which can help add scale benefits. The company also said the cost inflation impacts are "moderating". Management is choosing to continue to "provide value and affordability" for customers.
While it was disappointing to learn that margins are forecast to fall in FY25, I think the lower valuation now reflects the situation, but doesn't take into account the longer-term potential once economic conditions improve for customers.
Adairs Ltd (ASX: ADH)
Adairs is a retailer of homewares and furniture, with the brands of Adairs, Focus on Furniture and Mocka. The Adairs share price is down 15% in the past month.
The FY24 result and FY25 update didn't impress the market, with FY24 total sales down 4.3% and statutory NPAT down 17.8% to $31.1 million. The one major positive was the 50% increase in the dividend per share to 12 cents.
Group sales were down 0.4% in the first eight weeks of FY25 due to Mocka's 5.2% sales decline, but Adairs sales were up 0.2%.
However, the company is working on reducing costs, opening new stores (six new Adairs stores and three new Focus on Furniture stores) in FY25 and growing profit margins.
Assuming interest rates start coming down in 2025, I think the Adairs FY26 profit could significantly improve compared to FY24.
The FY24 grossed-up dividend yield is 9.2%, and it's trading at just 10x FY24's earnings.
