The ASX growth stock Johns Lyng Group Ltd (ASX: JLG) has fallen 30% since 26 July 2024, but I sense a longer-term opportunity with this company.
When a business with a good track record like Johns Lyng goes through a significant decline, I think we should consider if it has potential for a turnaround.
This company's key offering is rebuilding and restoring a variety of properties and contents after damage by insured events including, impact, weather, and fire events. Its clients include insurance companies, governments, body corporates, owners' corporations, and retail customers.
Let's get into why I think it's attractive.
Ongoing core growth
The business can't control what happens with storms or other events, so its catastrophe-related earnings can be very variable. The company is expecting FY25 catastrophe revenue to be materially lower than FY24 and FY23. However, I think it would be unwise to assume there won't be any damaging events in the future that Johns Lyng can assist with.
Johns Lyng said at its AGM that its teams have been engaged for some make-safe work after Hurricanes Milton and Helene, and it will "continue to engage with insurers and Government as the recovery efforts develop".
However, at this lower valuation, I think investors can largely focus on the company's non-catastrophe operations, which continue to grow at a pleasing pace.
In FY25, the ASX growth stock is now forecasting business as usual (BAU) revenue growth of 25.9% year over year and BAU operating profit (EBITDA) growth of 16.3%.
When EBITDA is growing at a double-digit percentage rate, it can help the BAU net profit grow at a good pace too.
At the current Johns Lyng share price, it's trading at 22x FY25's estimated earnings, with further profit growth expected in FY26, according to Commsec. I think it's undervalued, partly due to its long-term potential in the US.
US presence
The United States is by far the biggest Western economy in which Johns Lyng can operate. It's a huge potential addressable market for the ASX growth stock to increase its market share in the coming years.
At the AGM, the company said that FY24 was a "formative year" for its US operations, having laid the groundwork for steady growth and taken "strategic steps to build a pipeline of work across its core BAU offerings."
It was also noted that at the 2023 AGM, it had 13 business partners across five states, and it now has 25 business partners with 51 locations across the US.
During FY24, it also introduced its core business service lines into the US, being 'Johns Lyng Makesafe', 'Express Reconstruction' and 'Steamatic Restoration'. Those services have been a key driver of its success in Australia, allowing it to meet a broader range of client needs.
In five years, I can see Johns Lyng making a lot more profit in the US.
Growing dividend from the ASX growth stock
My third reason for liking John Lyng is the rising payouts. I like seeing an ASX growth stock hike its dividend because it's usually a sign of growing profitability and confidence from the board of directors.
Impressively, Johns Lyng has grown its dividend every year since it started paying one in 2018.
Dividends aren't guaranteed, but the company's payout is forecast to grow to 9.6 cents per share in FY25, which would translate into a grossed-up (including franking credits) dividend yield of 3.25%.
A combination of growing profit and a rising dividend sounds compelling to me.
