I think it's possible to outperform the S&P/ASX 200 Index (ASX: XJO) with a wide range of ASX shares. We just need to buy them at the right time to deliver good returns.
The investment team from Wilson Asset Management (WAM) have outlined two of the opportunities in the WAM Research Ltd (ASX: WAX) portfolio. This listed investment company (LIC) aims to find the most compelling undervalued growth opportunities on the ASX share market.
Let's take a look at the two compelling businesses that have been highlighted.
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Collins Foods Ltd (ASX: CKF)
WAM describes this ASX share as the largest operator of KFC restaurants in Australia and a growing operator of fast-food restaurants in Europe
The fund manager pointed out that the Collins Foods' share price increased 17% after releasing its FY25 result last month and continued to rally over the rest of month.
WAM noted Collins Foods shares reported a record of $1.52 billion in revenue, strong net operating cash flows of $181.4 million and a reduction in net debt in $137.9 million.
The investment team explained that the key highlight was the better-than-expected profit margins in the second half of the financial year for KFC Australia, as cost deflation and productivity improvements shone through despite challenging market conditions.
Collins Foods' management commentary is underpinning WAM's confidence that there will be a return to earnings growth in FY26. A (potential) recovery in performance is attributed to improving sales growth momentum, continued restaurant expansion, marketing and product innovation and a second-half margin rebound as expected interest rate cuts drive improved consumer sentiment, according to WAM.
Austin Engineering Ltd (ASX: ANG)
This ASX share is a mining equipment specialist. The Austin Engineering share price dropped 16% after releasing a trading update at the start of the month, which saw the business downgrade its FY25 operating profit (EBIT) guidance to $41 million because of margin pressure on a large Chilean truck-body contract that necessitated higher ramp-up costs.
In that update, management lifted its FY25 revenue guidance to approximately $370 million, which is up approximately 18% year-over-year. However, margin pressure was a disappointment.
WAM noted the ASX share is implementing measures to improve the profit margin recovery, including temporarily relocating production to the site in Batam, whilst improving overall plant efficiency.
The WAM investment team believe this is a short-term setback which is reflective of "transitional challenges" that "should normalise" in FY26 as management drive operational improvements and margins recover across a larger revenue base.
