The Australian share market has traditionally generated a return of around 10% per annum.
But investors don't necessarily have to settle for that, especially with some ASX stocks tipped for outsized returns.
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Which ASX stock?
The stock that Bell Potter believes is severely undervalued is AMA Group Ltd (ASX: AMA).
It is the largest accident repair company in Australia with approximately 140 vehicle panel repair shops.
Bell Potter highlights that AMA released its third quarter update this month and has delivered earnings ahead of expectations thanks to stronger than forecast margins. In addition, it was pleased to see management announce plans for a share buyback. It said:
Normalised pre-AASB 16 EBITDA of $17.9m in 3QFY26 was 2% above our forecast of $17.6m and the beat was driven by a higher margin than forecast (7.0% vs BPe 6.7%) while revenue was slightly below ($254.2m vs BPe $263.3m). At a business level, Capital Smart and Specialist Businesses were both ahead of our forecasts ($13.3m and $1.8m vs BPe $12.4m and $1.0m) while AMA Collision and Wales were below ($2.0m and $1.5m vs BPe $4.6m and $2.1m).
Operating cash flow pre-AASB 16 of $(0.4)m was below our forecast of $3.8m but was negatively impacted by a higher-than-expected $6.3m tax payment during the quarter. AMA announced its intention to put a share buyback program in place given "the Board has determined that recent market volatility presents a good capital management opportunity."
Share tipped to almost double
According to the note, the broker has retained its buy rating on the ASX stock with an unchanged price target of $1.10.
Based on its current share price of 56 cents, this implies potential upside of 96% for investors over the next 12 months.
Commenting on its buy recommendation, Bell Potter said:
There are no changes in the key assumptions we apply in the valuations we use to determine our target price which are a 5.5x multiple in the EV/EBITDA and 10.5% WACC in the DCF. Yes, we adjusted these assumptions to reflect the risk of a downgrade to the guidance but we leave them unchanged as we still see risk of a downgrade at some stage or a slight miss at the result. The result is no net change in our target price of $1.10 and we retain the BUY recommendation.
The key potential positive catalyst is an end to the conflict in the Middle East and a reduction in fuel prices though we note that, even with fuel prices remaining elevated, anecdotal evidence suggests traffic volumes are relatively normal in at least city areas, particularly with school holidays now over.
