When there are big moves on the ASX share market, investors have the chance to unlock strong returns with some of Australia's top shares.
Buying when share prices have taken a hit seems like a smart move to me because of the better price/earnings (P/E) ratio valuation and potentially a larger dividend yield.
I think Nick Scali Ltd (ASX: NCK), a furniture retailer, is one of the most underrated businesses on the ASX. I reckon this is a great time to think about buying shares.
It has fallen well over 30% since mid-January 2026, as the chart below shows.
The business saw significant declines in 2022 and 2023, with both years proving, in hindsight, to be great times to invest. I think this is another time to invest in one of Australia's top shares.
Image source: Getty Images
Store network potential
I like to invest in businesses that have plenty of room to expand in the coming years. For Nick Scali, one of the easiest ways to deliver growth is by adding more stores and reaching new customers.
There are a number of ways it can grow its store count. In Australia and New Zealand, it has 110 Nick Scali and Plush stores. The business thinks it can reach between 180 to 200 ANZ locations, which would represent growth of between 63% to 82%. Enlarging the ANZ network could bring significant scale benefits and margin improvements.
Nick Scali also recently bought a small UK furniture business called Fabb Furniture and it's rebranding those stores to Nick Scali. The ASX share is selling Nick Scali furniture in those UK stores, which is leading to a large uptick in the gross profit margin.
The company thinks the UK network could grow from the current 19 locations to between 60 to 70, a rise of between 215% to 268%.
Profit margins to improve?
The business has lost some market confidence in the last few months, but I still think the long-term looks very promising. I reckon the market is underestimating how much the company's earnings could rise.
Nick Scali's FY26 half-year result was a great example of how the company's profit margins could rise as the business grows. Operating leverage is a powerful attribute for Australia's top shares.
In HY26, group revenue rose by 7.2% to $269.3 million, the group gross profit margin improved by 310 basis points (3.10%) to 65.4%, operating profit (EBITDA) rose 18.1% to $96.6 million and net profit after tax (NPAT) grew 23.1% to $41 million.
Aside from a potential headwind of high inflation and rising interest rates in 2026, I think the company is on track to increase its profit margins and return on equity (ROE) over time.
Pleasing dividend
An added bonus when it comes to this business is a solid dividend that has grown significantly over the past decade. Impressively, in the HY26 result, the interim dividend was hiked by 30% to 39 cents per share.
According to the projection on Commsec, the business is forecast to pay an annual dividend per share of 78 cents in FY26. That translates into a grossed-up dividend yield of close to 7%, including franking credits, at the time of writing.
