On Wednesday, the company released its H1 FY26 result, which led to a 12% share price fall.

Investors then continued to exit the company on Thursday. 

As a result, Step One shares are down 17% this week.

What did the company report?

Step One Clothing is a direct-to-consumer online retailer for men's undergarments.

Included in Wednesday's half year earnings was: 

• Revenue of $36.3 million for the six months to 31 December 2025, down 24.5% compared to the prior corresponding period
• EBITDA loss of $10 million, compared to a $11.2 million profit a year earlier
• Statutory NPAT loss after tax of $8.5 million, versus a $8.2 million profit in 1H25
• Gross margin declined to 43%, down from 78% in the prior period. 

Speaking on the results, Step One Founder and CEO, Greg Taylor, said: 

Sales in late 2025 were below our expectations, primarily due to slower-than-expected clearance of legacy inventory despite promotional activity. As a result, we have taken a $10.9 million provision against this stock, which is now fully provided for, with no material additional provisions anticipated.

What now for Step One shares?

Following this week's fall, there could be an opportunity to buy low on Step One shares. 

Two brokers have provided updated guidance following the earnings results. 

In a note out of Morgans, the broker said the 1H26 earnings were broadly in line with guidance provided in December, although fell materially short of prior expectations. 

Morgans said FY26 will be a reset year for the business, with management focusing on rebuilding brand equity for longer term profitable growth. 

STP have reset pricing, scaling back promotional activity, increased brand marketing spend to drive new customer acquisition and continue to launch new products in adjacent categories. We have made modest changes to earnings, our price target is $0.29 (was $0.30) and we maintain our HOLD recommendation.

From yesterday's closing price of $0.265, this indicates an upside of 9.4%. 

Bell Potter weighs in

The team at Bell Potter also provided updated guidance on Step One shares following the result. 

The broker reiterated its hold recommendation, and also revised its price target to $0.29. 

Given the recent inventory provision, we remain cautious on inventory management due to the increased investment into new products, particularly with a push into new segments with broader competitive pressures.

We still view STP's product as market leading in terms of quality, however we believe a mix of maturation in the core market/customer mixed with a higher cost of living to provide future strain on the business.

The post What are brokers saying about Step One shares after 17% crash appeared first on The Motley Fool Australia.

The result marks a sharp reversal from the prior corresponding period and underscores the challenges facing the business as it executes a strategic reset.

What did Step One report?

Step One reported revenue of $36.3 million for the six months to 31 December 2025, down 24.5% on the prior corresponding period.

The company posted an EBITDA loss of $10 million, compared to a profit of $11.2 million a year earlier, whilst statutory NPAT was a loss after tax of $8.5 million, versus a profit of $8.2 million in 1H25.

Gross margin fell sharply to 43%, down from 78% in the prior period, reflecting the inventory write-down.

What else do investors need to know?

The key driver of the result was the $10.9 million provision against aged and slow-moving inventory, despite promotional activity.

Accounting rules require inventory to be valued on the balance sheet at the lower of cost or net realisable value, and so this inventory write-down implies that the company's legacy stock can likely only be sold at prices well below cost, despite clearance activity such as Black Friday promotions.

Encouragingly, the company ended the half with $24 million in cash and term deposits, whilst total liabilities were $8.4 million.

No interim dividend was declared. Dividends are expected to recommence once retained earnings return to a positive balance.

What did management say?

Founder and CEO Greg Taylor said sales in late 2025 were below expectations due to slower-than-expected clearance of legacy inventory.

He described the result as reinforcing the urgency of the company's "reset program," which includes moderating discounting, focusing on product innovation, and restoring brand perception.

Given the transition phase, management is not providing full-year earnings guidance.

Share price snapshot

Prior to today's sell-off, Step One shares had already been under pressure amid slowing growth and margin compression. Today's 12% drop reflects investor concern about the struggle to move inventory, along with declining revenue and margin contraction.

With the inventory provision now taken and the balance sheet still solid, investors will be watching closely to see whether the reset can stabilise sales and restore profitability in the second half.

Step One shares are down 80% over the past 12 months.

The post Step One shares plunge 12% as inventory write-down wipes out half-year profit appeared first on The Motley Fool Australia.

Does it rate them as buys, holds, or sells? Let's find out.

Catapult Sports Ltd (ASX: CAT)

This sports performance technology company has been given a buy rating by Morgans with a $6.25 price target.

It likes the company due to its large addressable market and strong growth outlook. With respect to the latter, the broker believes Catapult is positioned to deliver a compound annual growth rate of 20% for its annualised contract value through to FY 2028. It explains:

Catapult Sports Ltd (CAT) is a global leader in sports performance technology that provides a comprehensive all-in-one platform for elite professional and collegiate sports. This encompasses coaching, scouting, analytics and athlete management. Initially landing with its core wearables technology, CAT has since expanded its service offering and opened up new key verticals assisting its penetration into a large addressable market of ~20k teams globally.

We forecast strong topline growth for CAT, estimating a ~20% ACV 3-year CAGR, reaching ~US$180m by FY28. A scalable platform and strong SaaS metrics should see CAT join the 'Rule of 40' club by FY27. We initiate coverage on Catapult Sports (CAT) with a Buy recommendation and a A$6.25 per share price target.

Step One Clothing Ltd (ASX: STP)

This beaten down online underwear seller has copped a downgrade from Morgans following its disappointing trading update.

The broker has downgraded its shares to a hold rating with a reduced price target of 30 cents. It said:

STP has provided a materially weaker than expected trading update for 1H26. Revenue for 1H26 is expected to be down 31-37% to $30-33m and EBITDA is expected to be a loss of $9-11m, including a $10m provision for inventory obsolescence. Excluding inventory obsolescence, EBITDA for 1H26 would be a loss of $1m to $1m profit.

As a result of recent trading, STP has withdrawn its FY26 earnings guidance. We have materially lowered our earnings estimates for FY26/27/28 based on this trading update and uncertainty around the path forward. We have moved our recommendation to a HOLD (from SPEC BUY), with a blended EV/EBIT and DCF valuation of $0.36, we have applied a 15% discount to this valuation to set our price target at $0.30 due to earnings uncertainty.

WiseTech Global Ltd (ASX: WTC)

Finally, this logistics solutions technology company could be in the buy zone according to Morgans.

It was pleased with its investor day update and believes it is well-placed to continue its strong growth in the coming years. It has a buy rating and $112.50 price target on its shares. Morgans said:

WTC's FY25 investor day highlighted the group's progress and broader outlook for a number of key near to medium-term growth initiatives, which in our view continues to see the group in a solid position to drive value. We retain our BUY rating, with a revised PT of $112.50ps.

The post Buy, hold, sell: Catapult, Step One, WiseTech Global shares appeared first on The Motley Fool Australia.

Four ASX shares that are falling more than most today are listed below. Here's why they are tumbling:

Collins Foods Ltd (ASX: CKF)

The Collins Foods share price is down over 3% to $10.22. This has been driven by the quick service restaurant operator's shares going ex-dividend this morning. Earlier this week, the company released its half year results and declared a fully franked interim dividend of 13 cents per share. This dividend will be paid to eligible shareholders early next month on 5 January

Monash IVF Group Ltd (ASX: MVF)

The Monash IVF share price is down 2.5% to 84.2 cents. This may have been driven by a broker note out of Macquarie this morning. According to the note, the broker has downgraded the fertility treatment company's shares to a neutral rating with a 94 cents price target. It said: "We move our recommendation to Neutral, from Outperform. While we continue to expect medium-term upside on an improving macro environment, increased genetic testing, underlying structural demands, demographic and social changes, we think the share price is approaching fair value. Prior research."

Premier Investments Ltd (ASX: PMV)

The Premier Investments share price is down 13% to $15.72. Investors have been selling this retailer's shares following the release of a trading update at its annual general meeting. The Peter Alexander and Smiggle owner revealed that Premier Retail first half underlying earnings before interest and tax (EBIT) is expected to be around $120 million. This is down 7.3% on the prior corresponding period.

Step One Clothing Ltd (ASX: STP)

The Step One share price is down almost 12% to 26.5 cents. This online underwear seller's shares have been sold off this week after it announced dismal sales results for the first half of FY 2026. Step One advised that it expects half year revenue to be in the range of $30 million and $33 million. This represents a decline of between 31% to 37% on the prior corresponding period. Things will be even worse for its EBITDA, which is expected to be a loss of between $9 million and $11 million. This is down from a profit of $11.3 million a year ago and includes a $10 million obsolescence provision against legacy stock that it has been unable to shift.

The post Why Collins Foods, Monash IVF, Premier Investments, and Step One shares are tumbling today appeared first on The Motley Fool Australia.

In morning trade, the ASX stock is down a further 6.5% to a new 52-week low of 28 cents.

This latest decline means that the online underwear seller's shares have now lost almost 80% of their value since the start of the year.

Is this a buying opportunity for investors? Let's see what analysts at Bell Potter are saying about the beaten down stock.

What is the Bell Potter saying?

Bell Potter was very disappointed with Step One's trading update this week, which revealed a sharp decline in sales, a significant inventory write-down, and an expected first half EBITDA loss.

In response, the broker has taken an axe to its revenue and earnings estimates through to FY 2028. It explains:

We downgrade our revenue forecasts by 32%/36%/41% in FY26/27/28e, driven by slowing customer growth and anticipated lower basket sizes. We adjust gross margin expectations, factoring in the $10m inventory provision in 1H26e, and pullback longterm gross margins to ~70% given what we expect will continue to be a promotion reliant growth strategy to win new customers. As a result, our EBITDA forecasts have decreased by -207%/-78%/-68% in FY26/27/28e respectively, and see long-term margins revert to high single-digits from previous low-teens.

ASX stock downgraded

According to the note, the broker has downgraded the ASX stock from a buy recommendation to neutral with a heavily reduced price target of 30 cents (from 85 cents). This valuation is largely in line with where Step One's shares trade today.

Commenting on the online retailer, the broker revealed that it is cautious on its outlook and fears that its opportunities in the core Australian market are now limited. It said:

We downgrade to a Hold recommendation, and our Price Target decreases 65% to $0.30/share (from $0.85/share) driven by our earnings revisions. We maintain our target EV/EBIT multiple at 5.4x, at a 25% discount the peer group median, and continue to value the business on a blend of relative valuation and DCF (WACC 11% and TGR 3%).

We are cautious on the outlook for STP given we believe its core Australian market (~63% of revenue) has matured with customer growth avenues limited. We also note that given the size of the inventory write-down, this could indicate a "nip in the bud" approach but given the slow-down in the November period, we remain cautious on future inventory turnover. We continue to be positive on its UK business as the key driver for new customer growth going forward.

The post Down 80% in 2025: Is it time to buy this beaten down ASX stock? appeared first on The Motley Fool Australia.

Four ASX shares that are acting as a drag today are listed below. Here's why they are falling:

Firefly Metals Ltd (ASX: FFM)

The Firefly Metals share price is down over 5% to $1.84. This morning, the copper and gold developer announced that it has received firm commitments for $134.1 million equity raising. The proceeds will underpin a resource growth campaign and progress upscaled mining studies at its Green Bay Copper-Gold Project in Canada. FireFly's managing director. Steve Parsons, said: "This highly successful raising means we can embark on a no-holds-barred drilling campaign aimed at creating further shareholder value in a very timely manner."

Pantoro Gold Ltd (ASX: PNR)

The Pantoro Gold share price is down 5% to $4.60. This appears to have been driven by weakness in the gold industry, which has offset the release of an announcement this morning. Pantoro provided an update on the ongoing underground and surface diamond drilling program at its Scotia Underground Mine. Its managing director, Paul Cmrlec, said: "These latest drilling results reinforce our confidence in the Scotia geological model, with stacked high-grade lodes continuing at depth and along strike."

Step One Clothing Ltd (ASX: STP)

The Step One share price is down 37% to 31 cents. Investors have been rushing to the exits after the underwear seller announced dismal sales results for the first half. It advised that it expects half year revenue to be in the range of $30 million and $33 million. This represents a decline of between 31% to 37% on the prior corresponding period. Step One's EBITDA is expected to be a loss of between $9 million and $11 million, which is down from a profit of $11.3 million a year ago. This includes a $10 million obsolescence provision against legacy stock that it has been unable to shift.

Vulcan Energy Resources Ltd (ASX: VUL)

The Vulcan Energy share price is down 31% to $4.24. This has been driven by the lithium developer completed a major capital raising this morning. Vulcan Energy's institutional offer raised 398 million euros (A$710 million) at $4.00 per new share. This represents a 34.7% discount to its last close price. Vulcan's managing director and CEO, Cris Moreno, said: "We would like to thank our existing shareholders for their continued support and welcome our new shareholders onto the register, including strategic investors. The Placement will enable Vulcan to transition from development phase into execution phase with project execution of Project Lionheart due to commence in the coming days."

The post Why Firefly Metals, Pantoro Gold, Step One, and Vulcan Energy shares are sinking today appeared first on The Motley Fool Australia.

Two ASX stocks that are heading in very different directions are named below. Here's what is driving their share prices today:

Nuix Ltd (ASX: NXL)

The Nuix share price is up 5% to $1.89. This follows the announcement of an agreement to acquire Linkurious, which is a graph-powered AI decision platform, for up to 20 million euros (~A$35.4 million).

The release notes that the Paris-founded business provides technology that allows customers to visually explore and investigate graph data, to detect patterns of interest and investigate alerts.

Management notes that the acquisition builds on Nuix's innovation roadmap through the incorporation of powerful and intuitive graph technology and data visualisation.

Linkurious had Annualised Contract Value (ACV) of ~ 7 million euros (~A$12 million) at the end of June and recorded positive EBITDA and operating cash flow for the full year to 31 December 2024.

Nuix's interim CEO, John Ruthven, said:

The acquisition of Linkurious is an exciting accelerator for our strategic vision to enable our customers with insights from complex data at unparallelled speed and scale. This injection of graph-native expertise, proven link analysis technology and quality customers will allow us to bring immediate value to our customers.

Step One Clothing Ltd (ASX: STP)

The Step One share price is crashing 31% to 33.5 cents. Investors have been selling the underwear retailer's shares after it released a disappointing trading update.

Management advised that based on year-to-date trading, including estimates for December, it expects half year revenue to be in the range of $30 million and $33 million. This represents a decline of between 31% to 37% on the $48.1 million recorded in the prior corresponding period.

Things will be worse for its earnings, with management expecting its EBITDA to be a loss of between $9 million and $11 million. This compares to a profit of $11.3 million a year ago. Though, this half will include a $10 million provision for inventory obsolescence. It commented:

The recent sales results were materially below expectations, and our efforts to clear older and slower-moving inventory were not successful. As a result, the Company has raised a $10 million obsolescence provision against this legacy stock. This inventory is now fully provisioned, and no further material provisions are anticipated at this stage.

In light of the above, the ASX stock has withdrawn its FY 2026 EBITDA guidance and advised that no updated guidance will be issued at this stage. It will update the market once greater visibility over trading and inventory outcomes is available.

The post Why these popular ASX stocks are making big moves on Thursday appeared first on The Motley Fool Australia.

It's important to remember penny stocks can be risky investments because they often represent pre-profit or low liquidity companies. This can come with limited financial transparency, low liquidity, and high susceptibility to price manipulation and extreme volatility.

With that being said, here are two that Morgans has placed attractive price targets on. 

MLG Oz Ltd (ASX: MLG)

MLG Oz Ltd operates within the Australian mining industry. It offers comprehensive supply chain solutions such as crushing and screening, quarry products, and Bulk Haulage & Site Services, and others.

It also reported on Wednesday, which included the following results: 

• Statutory Revenue up 15.5% to $548.3 million, compared to the prior corresponding
• period (pcp).
• Statutory Earnings before interest, tax, depreciation and amortisation (EBITDA) of $66.1
• million, up 19.5% on pcp (FY2024: $53.3 million).
• Statutory Net Profit After Tax (NPAT) up 10% to $12.1 million (pcp $11.0 million).
  
  

Morgans was pleased with the results, and increased its price target to $1.00 (from $0.90). 

From yesterday's closing price of $0.81, this indicates an upside of 23.46%. 

The 2H result was robust with EBITDA of $37m (vs $29m in 1H) on margins of 13.5%. This came despite a lack of meaningful crushing & screening revenue. Rather, the core haulage business performed strongly on the back of a more predictable state of activity in key regions as well as portfolio optimisation (rates) and well-managed utilisation.

This augurs well for FY26, when the company is likely to see a step up in crushing & screening. More generally, MLG has significant opportunities for scope growth with existing gold clients, as well as growth potential in iron ore.

Step One Clothing Ltd (ASX: STP)

Step One Clothing Ltd is a direct-to-consumer online retailer for men's undergarments. Its products comprise Boxer Brief, Trunks, and Boxer Breif+Fly.

On Wednesday, the company reported: 

• Revenue of $86.9 million, up 2.8% on pcp (FY24: $84.5 million)
• EBITDA of $17.4 million, down 3.7% on pcp (FY24: $18.1 million)
• Net profit of $12.7 million, up 2.0% on pcp (FY24: $12.4 million)
• Strong financial position with cash and financial assets of $33.1 million and no debt
• Final dividend of 2.4 cents per share, fully franked; 100% of earnings distributed while
• maintaining capacity to invest in growth
  
  

This sent the company's stock price soaring with gains of approximately 30% over the last two days despite missing expectations. 

At yesterday's close, this penny stock was trading at $0.60. 

Based on these results Morgans decreased its price target on the consumer discretionary share, but still sees upside if the company can execute on its FY26 strategy. 

The broker suggests that if Step One Clothing successfully executes its turnaround strategy, the stock could be worth $0.95, but there's higher-than-normal uncertainty or risk involved in reaching that valuation.

STP's FY25 result missed expectations, gross margins were materially lower driven by increased discounting, somewhat offset by reduced marketing spend. 

STP will use FY26 to reset pricing and promotions, drive new customer acquisition, launch new products and clear excess inventory. We think this is a prudent move to sustain longer-term profitable growth, but lowers near-term earnings. 

Our DCF and EV/EBIT valuation reduces to $0.95. We have a speculative buy recommendation.

The post Earnings season tips: Broker updates guidance on 2 penny stocks appeared first on The Motley Fool Australia.

But with two brokers still rating the company a buy, there could be more to this story than meets the eye.

What does Step One do?

Step One is a direct-to-consumer underwear brand that offers a range of high-quality, sustainable, and ethically produced men's underwear. It operates in Australia and the United Kingdom and prides itself on catering to a wide range of body types with its inclusive designs and environmentally conscious materials.

While it's still best known for its men's range, Step One has flagged its intention to launch a women's collection, a move that could broaden its addressable market and drive future growth.

What's gone wrong?

In short: consumer spending.

In a recent statement, founder and CEO Greg Taylor summed up the challenge:

FY25 has been a challenging year, with subdued consumer spending and ongoing cost-of-living pressures continuing to weigh on discretionary spending. Customer purchasing behaviour has become increasingly reliant on sale events and promotions.

This trend has hurt Step One's margins. With shoppers holding out for discounts, the company has had to cut prices to maintain volume — a tough balancing act for any premium brand.

As a result, Step One has taken a more cautious approach to marketing investment, choosing to protect its balance sheet in the face of economic uncertainty.

Brokers still see value

Despite the challenging conditions, brokers at Bell Potter and Morgans have both retained buy ratings on Step One shares, albeit with trimmed price targets.

Bell Potter now sees Step One as worth $1.25, noting that while gross margins are under pressure, sales growth has held up and the product model remains attractive. The broker believes a turnaround could begin in the second half of 2026, supported by lower interest rates and a less promotional retail environment.

Morgans is a little more upbeat, maintaining a $1.50 price target and noting that shares offer compelling value — trading on under 10x forecast FY26 earnings and potentially offering a fully franked dividend yield of ~10%.

The broker cut its FY25 and FY26 net profit forecasts by 14% and 17%, respectively, due to reduced sales growth and thinner margins. But the long-term story, it seems, is still intact.

What to watch from here

Step One is scheduled to report its FY25 results on 20 August 2025. With expectations reset and brokers still in its corner, any green shoots in guidance or margin recovery could spark renewed interest in the stock.

While it's been a tough year, the brand's strong customer loyalty, premium positioning, and potential expansion into women's apparel could underpin a longer-term rebound.

The post This ASX small cap had its pants dropped, but brokers still back it appeared first on The Motley Fool Australia.

The S&P/ASX All Ordinaries Index (ASX: XAO) is down 0.65% on Friday, and the S&P/ASX 200 Index (ASX: XJO) is down 0.66%.

ASX retail shares are underperforming, with the S&P/ASX 200 Consumer Discretionary Index (ASX: XDJ) down 0.76%.

Yesterday, the Australian Bureau of Statistics reported a 'retail sales surge' in June.

The ABS said national retail turnover rose 1.2% last month, according to seasonally adjusted figures.

This follows a 0.5% rise in May after a flat April 2025. 

The ABS said non-food related spending across all industries drove most of the increase in retail turnover.

The new retail figures follow better-than-expected inflation data for the June quarter released on Wednesday.

Looking ahead, the combination of contained inflation and expectations of further interest rate cuts bodes well for ASX retail shares.

7 ASX retail shares to buy now: brokers

In light of this potentially changing retail environment, let's examine a few ASX retail stocks with buy ratings today.

Step One Clothing (ASX: STP)

Step One Clothing shares are currently 69 cents, down 2.13%.

This week, broker Bell Potter maintained its buy rating on Step One Clothing but reduced its 12-month price target from $1.30 to $1.25.

The broker said the price target reduction reflected "Bell Potter's earnings revision outlook factoring in a delayed recovery in the consumer spend environment". 

Accent Group Ltd (ASX: AX1) 

The Accent share price is $1.50, up 0.47%.

Jabin Hallihan from Family Financial Solutions has an accumulate rating on this ASX retail share with a valuation of $2.11 apiece. 

Hallihan said subdued demand has hurt the footwear retailer, but economic tailwinds suggest a potential rebound. 

The analyst told The Bull: 

Rising real incomes, recovering consumer confidence and anticipated interest rate cuts, possibly in August, paint a brighter outlook for discretionary retailers. 

While recent demand has been soft, market sentiment may be under-pricing the turnaround potential. 

Lovisa Holdings Ltd (ASX: LOV)

Lovisa shares are currently $33.54, down 1.76%.

Morgans reckons Lovisa could continue to deliver double-digit earnings growth.

The broker notes the budget jewellery retailer's growing brand awareness and plans to open hundreds of new stores.

Morgans has given this ASX retail share an add rating and a $35 price target.

Harvey Norman Holdings Ltd (ASX: HVN)

The Harvey Norman share price is $5.81, up 0.086%.

In a new note, Macquarie gave Harvey Norman shares an outperform rating and increased its price target from $5.50 to $5.90.

The broker points out that a material portion of Harvey Norman's sales is linked to housing market conditions.

With lower interest rates already pushing up home values, and with more expected after this week's inflation data, the outlook is pretty bright for the property market. 

Macquarie says Harvey Norman should benefit from "a more prolonged recovery across housing-related categories".

It says that potentially slower consumer electronics sales will be offset by higher 'whole-of-home' categories.

Eagers Automotive Ltd (ASX: APE)

Eagers Automotive shares are currently $19.90, up 1.43%.

Macquarie also likes car retailer Eagers Automotive for further share price rises, despite a 66% gain in FY25.

The broker has an outperform rating on this ASX retail share with a price target of $20.60.

Macquarie said: 

We expect APE to achieve its larger than typical 2H skew.

The ST margin outlook has stabilised, and we see material upside to LT margins.

Offshore M&A and further rate cuts are material catalysts.

Temple & Webster Group Ltd (ASX: TPW)

Temple & Webster shares are currently $24.75, up 1.12%.

Temple & Webster was the best-performing ASX retail share for price growth in FY25, soaring 127%.

Morgan Stanley is bullish on its outlook for the online furniture and homewares retailer.

The broker gives this ASX retail share an overweight rating and $28 price target.

Collins Foods Ltd (ASX: CKF)

Collins Foods shares are $9.23 on Friday, down 0.59%.

This company operates KFC stores in Australia and Europe. 

Ord Minnett has maintained an accumulate rating on Collins Foods shares and raised its share price target from $8.50 to $9.50.

The fast food operator's FY25 earnings were "well ahead" of the broker's forecasts, driven by wider margins.

The broker said: ‍

Generating wider second-half FY25 margin expansion in its Australian operations was an impressive result given the impact of Cyclone Alfred on Queensland, where circa 60% of the company's KFC stores are located. ‍

Further reading on ASX retail shares

Check out the 5 fastest rising ASX 200 retail shares of FY25 here.

The post 7 ASX retail shares to buy as Aussies start spending again: experts appeared first on The Motley Fool Australia.

Two of these shares have been named as buys and two have been named as holds. Let's see what the broker is saying about them now:

Bapcor Ltd (ASX: BAP)

This auto parts company's shares have been hammered this month following a disappointing update and it isn't hard to see why. Morgans commented:

BAP delivered an especially weak update: FY25 NPAT of A$81-82m (-14% pcp; 2H25 NPAT -21% hoh); A$48-50m in significant items; A$24m in overstatements in past profit; and the immediate resignation of three Board members. The group's exit rate into FY26 weakened materially post the April 25 Investor Day. Implied 2H25 NPAT was 30% below consensus expectations, all divisions delivered negative 2H25 sales growth (vs 1H25), and trading in May-June was noticeably soft (specifically within Trade).

In light of this, it may not come as a big surprise to learn that Morgans isn't recommending Bapcor as an ASX share to buy right now. It has put a hold rating and $3.70 price target on its shares.

The broker appears to believe that investors should wait to see if its latest turnaround is successful before picking up shares. It said:

BAP is pursuing another turnaround under a refreshed leadership team. While we see meaningful value in the core business, the sharp deterioration in trading performance since the April 25 update has materially reduced confidence in near term earnings. Execution risk remains high given BAP's size and the complexity of its operations, and we prefer to see clear evidence of progress before revisiting the investment case.

Regal Partners Ltd (ASX: RPL)

This fund manager could be an ASX share to buy according to analysts at Morgans.

They were impressed with the company's performance during the first half of 2025. And given its attractive valuation, the broker thinks now could be a good time to invest and has put a buy rating and $3.55 price target on its shares. It said:

[W]e update our earnings estimates to reflect updated 1HCY25 performance fees, 1HCY25 NPAT guidance of $40m and continued FUM growth through the Jun-25 quarter. Trading at a PER of 13x (CY26), with a strong balance sheet and capacity to continue growing FUM, we retain our BUY rating with a price target of $3.55/sh.

Peter Warren Automotive Holdings Ltd (ASX: PWR)

Another ASX share that Morgans has been looking at is auto retailer Peter Warren Automotive.

While it was pleased with its recent update and believes its margins have hit a cyclical bottom, it isn't enough for a buy rating just yet. The broker has retained its hold rating with an improved price target of $1.75. It said:

PWR provided FY25 underlying PBT guidance of ~A$22m, with 2H25 PBT of ~A$15m up from A$7.1m in 1H25. Guidance was above the company's previous statements pointing to a flat 2H25 earnings outcome. PWR noted the 2H25 uplift was delivered via an improved seasonality outcome (June end-of-year marketing campaigns) and actions to optimise inventory and costs.

Whilst margins have likely bottomed and a solid earnings recovery should be delivered into FY26/27, the business looks to lack meaningful structural growth drivers until consolidation can recommence.

Step One Clothing Ltd (ASX: STP)

A final ASX share that Morgans has been looking at is online underwear retailer Step One.

While its recent trading update was weaker than expected, Morgans remains positive and has reaffirmed its buy rating with a trimmed price target of $1.50. It also expects a very big dividend yield in the near term.

Commenting on the company, the broker said:

STP has provided a weaker than expected trading update, with EBITDA expected to be down (4)% yoy for FY25, driven by a challenging consumer environment. […] We think this implies a larger portion of total revenue has been generated during discount periods, and as such placing pressure on gross margins. We expect STP will have pulled back on marketing spend to offset some margin pressure.

We have downgraded our FY25/26 NPAT forecasts by 14% and 17% respectively driven by lower sales growth and lower gross margins. Our target price reduces to $1.50 driven by earnings revisions and lower peer multiples. We retain our Buy recommendation, STP is trading at <10x FY26 PE, offering a ~10% dividend yield.

The post Morgans names 2 ASX shares to buy and 2 to hold appeared first on The Motley Fool Australia.

Three top ASX shares that leading brokers have named as buys this week are listed below. Here's why they are bullish on them:

Seek Ltd (ASX: SEK)

According to a note out of Macquarie, its analysts have retained their outperform rating and $23.00 price target on this job listings company's shares. This follows the release of Australian job ad data, which implies that volumes were down 10% in FY 2025. The good news is that this was in line with Macquarie's expectations. In light of this, the broker feels that Seek will deliver a full year result within its guidance range and in line with consensus expectations. Outside this, Macquarie notes that Seek remains its top classifieds pick. It believes that product developments announced at the May Investor Day event will benefit ANZ yields (price + depth), which could see upside to consensus expectations for FY 2026, especially if volumes return to growth. It feels this could ultimately support a re-rating of its shares. The Seek share price is trading at $24.37 on Monday.

Step One Clothing Ltd (ASX: STP)

A note out of Bell Potter reveals that its analysts have retained their buy rating on this online underwear retailer's shares with a trimmed price target of $1.25. This follows the release of a trading update which revealed sales growth in line with its expectations. And while it is giving up gross margin to get it, the broker isn't too downbeat given its high-margin product model. Bell Potter has trimmed its estimates to reflect this but remains positive on the future. It believes a turnaround is coming from the second half of 2026, driven by rate cuts and lower discounting. The Step One share price is fetching 68 cents at the time of writing.

Xero Ltd (ASX: XRO)

Analysts at Morgan Stanley have retained their overweight rating and $235.00 price target on this cloud accounting platform provider's shares. According to the note, the broker isn't concerned by a rival's expansion in the US mid-market segment. In fact, it feels that there is no material threat to Xero's US business given its focus on smaller businesses. Morgan Stanley estimates that this is a US$21 billion market opportunity for Xero, giving it a significant long term growth runway. The Xero share price is trading at $178.26 this afternoon.

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In fact, if the broker is on the money with its recommendation, investors could double their money with this small cap ASX stock.

Which small cap ASX stock?

The stock in question is online underwear retailer Step One Clothing Ltd (ASX: STP).

Since listing on the Australian share market at $1.53 per share back in 2021, it has been a disappointing ride for shareholders.

On Thursday, the small cap ASX stock closed the session at 65 cents. This represents a 55% decline from its listing price and an even greater decline from its all-time high of around $3.00.

Bell Potter believes that the tide could be turning now that interest rates are falling. And this is just in time for the current end of financial year sales period. It said:

Throughout 2H25, several key macroeconomic developments in STP's core markets have emerged as potential tailwinds for the end-of-financial-year (EOFY) sales period and into FY26. Notably, both the UK and Australia implemented two rounds of interest rate cuts, in February and again in May. The result has strengthened consumer confidence and stimulated retail spending, both of which we have observed materializing.

In the 2H to-date, we have seen the Australian consumer start to gain confidence and begin to spend more (+3% YoY clothing retail spend Jan-Apr), while the UK has recorded its tenth straight month of positive retail sales growth, along with encouraging online clothing sales +6% in April.

The broker also highlights that the small cap ASX stock's discounting has been in line with rival retailers and, importantly, the broker's expectations. It adds:

Across the industry, we have monitored competitor discounting, with STP in line with Bonds and Calvin Klein in terms of depth of the discounts, showing the continued competitive nature in the promotional period, living up to our expectations. Positively, the sales period has shown an increase in May web traffic for STP in the UK and Australia, with conversion now the key test.

Big return potential

According to the note, Bell Potter has reaffirmed its buy rating and $1.30 price target on the small cap ASX stock.

Based on its current share price of 65 cents, this implies potential upside of 100% for investors over the next 12 months.

And just to sweeten the deal further, Bell Potter is expecting some big dividend yields in the near term. It has pencilled in a 7 cents per share dividend in FY 2025 and then a 7.4 cents per share dividend in FY 2026. This equates to whopping yields of approximately 11% in both years.

Commenting on its buy recommendation, the broker concludes:

We remain confident in our view that 2H26 will be the turnaround point for STP, forecasting a return to double digit growth in the half (BPe +12%) and for FY26e (BPe +10%). In FY27e we expect operating leverage to take effect as top line growth accelerates and the fixed cost base remains stable, with EBITDA returning to meaningful growth (BPe +20%). We note there continues to be a liquidity discount on the stock, with low daily traded volume paired with no guidance.

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Four ASX shares that are falling more than most today are listed below. Here's why they are dropping:

Cleanaway Waste Management Ltd (ASX: CWY)

The Cleanaway share price is down 1.5% to $2.66. Investors have been selling this waste management company's shares following the release of its half year results. Cleanaway reported a 3.7% increase in revenue to $1,940.2 million and a 13.7% lift in underlying net profit after tax to $94 million. However, on a statutory basis, its net profit was down 0.1% to $74.2 million. Looking ahead, management advised that it is "tracking towards the midpoint of our $395 to $425 million [EBIT] guidance range."

National Australia Bank Ltd (ASX: NAB)

The NAB share price is down 6% to $37.12. This has been driven by the release of the banking giant's first quarter update this morning. The big four bank reported a 2% decline in cash earnings compared to the quarterly average in the second half. Management notes that while underlying profit grew 4%, this was offset by higher credit impairment charges and tax expenses. NAB recorded a $267 million credit impairment charge (CIC) for the quarter. This included $152 million in individually assessed charges, mainly linked to Australian business lending and unsecured retail portfolios.

Step One Clothing Ltd (ASX: STP)

The Step One share price is down 22% to $1.11. Investors have been selling this online underwear retailer's shares following the release of its half year results. Step One reported a decent 6.8% increase in revenue to $48.1 million and a 10.4% lift in EBITDA to $11.2 million. However, investors may have been disappointed with its performance in the United States, where it reported a 61% decline in sales. This lucrative market appears to be a tougher nut to crack than some were hoping.

Stockland Corporation Ltd (ASX: SGP)

The Stockland share price is down 4% to $5.16. This follows the release of the property company's half year results. Although the company's statutory profit more than doubled to $245 million, its funds from operations (FFO) fell 5.6% over the prior corresponding period. Looking ahead, FY 2025 FFO per share of between 33 cents and 34 cents is expected on a post-tax basis, with a larger second half skew than in FY 2024. Its distribution per share is expected to be around 75%of post-tax FFO.

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From little things, big things grow, as the song goes.

Small caps are typically at an early stage of their growth ambitions, so it's possible for that company to grow to a multiple of its current size over time. It's much easier to grow net profit from $10 million to $20 million than to grow profit from $1 billion to $2 billion.

Another benefit of looking at small caps is that they're typically missed by analysts because they're too small. This can lead to undervalued stocks, even though they have a lot more growth potential ahead of them.

Below are two of the stocks I'm excited about due to recent share price declines.

Step One Clothing Ltd (ASX: STP)

This company is a direct-to-consumer online retailer of underwear. It says it offers a range of high-quality, organically grown and certified, sustainable, and ethically manufactured underwear.

The Step One share price has fallen by approximately 30% since the sale of shares by founder and CEO Greg Taylor. With the Step One share price down so much, this could be a good time to pounce on the ASX small-cap share.

I believe the business has a lot of growth potential because of its global expansion efforts. In FY24, it grew revenue by 29.7% to $84.5 million, with Australian revenue rising 18.3% to $50.9 million, United Kingdom revenue growing 33.2% to $27.1 million, and United States revenue climbing 261% to $6.5 million.

The scale of Step One's growth in the US and UK suggests to me that the company could expand significantly in those two markets.

It was also pleasing to see Step One demonstrate operating leverage, where its profit rose faster than revenue. FY24 net profit increased by 43.9% to $12.4 million.

I'm hopeful the company can continue to grow revenue and profit, particularly if it grows in additional markets like Canada.

Audinate Group Ltd (ASX: AD8)

Audinate is changing the world of AV (audio visual) with its Dante IP networking solution. It claims to be the world leader and serves clients in the professional life sound, commercial installation, broadcast, public address, and recording industries.

The idea is that it replaces traditional analogue audio cables by transmitting synchronised audio signals across large distances to multiple locations at once, using just an ethernet cable. Audinate is also looking to grow its presence in the video market, which is a huge addressable market.

To demonstrate the global scale of the ASX small-cap share, I'll note it has regional headquarters in the US, the UK, Belgium and Hong Kong.

The Audinate share price looks a lot cheaper after falling almost 70% from 15 March 2024.  

It's facing several headwinds, including shorter order lead times, increased inventory across the industry, slower clearance of raw material inventories by manufacturer customers, and softer-than-expected demand from end-users.

The company expects FY25 to be a transitional year and that it will return to growth in FY26 with more normal customer order patterns. If this prediction comes true, the market may be underlying the ASX small-cap share's growth potential from FY26 onwards.

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Businesses can provide a number of benefits for investors – they can grow profit, deliver capital growth, and pay a good dividend yield.

If I'm looking to buy a great ASX income share, I'm looking for businesses that can generate solid income today and much larger payments in the future.

With that in mind, I think the below two businesses are appealing stocks.

Centuria Industrial REIT (ASX: CIP)

This looks to me like one of the most appealing real estate investment trusts (REIT) to consider right now.

It describes itself as Australia's largest domestic pure-play industrial REIT, which has a portfolio of high-quality industrial assets in key metropolitan locations throughout Australia.

The business is benefiting from a number of tailwinds, including increasing e-commerce activity, onshoring of supply chains following COVID impacts, and Australia's rising population.

This growing demand for industrial property is translating into strong rental outcomes for the ASX income share. During the first quarter of FY25, it saw positive re-leasing spreads of 54%. That means the new rental contracts are generating 54% more rent than the old contract.

This rental growth can help deliver higher distributions in the coming years despite the headwinds of higher interest rates.

The ASX income share is expecting to pay a distribution per unit of 16.3 cents in FY25, which translates into a distribution yield of 5.4%.

Step One Clothing Ltd (ASX: STP)

This company describes itself as a leading direct-to-consumer online retailer of underwear, which Step One says is high quality, organically grown and certified, sustainable, and ethically manufactured for a broad range of body types.

Step One seems to be doing something which other Australian companies have struggled to – growing overseas. I'm not expecting Step One to become a $10 billion company, but its growth rate is impressive.

In the FY24 result, UK revenue grew by 33.2% to $27.1 million, and US revenue increased 261% to $6.5 million. Australia is still the key market, with $50.9 million in revenue in FY24 (up 18% year over year), but other countries could become more important. I'm expecting Step One to expand to other countries in the future, such as Canada.

I'm also pleased to see operating leverage being demonstrated, with rising profit margins. FY24 net profit rose 43.9% to $12.4 million. While net profit may not grow every year, I do think it'll be much higher in five years and ten years.

In FY24, the business paid a grossed-up (including franking credits) dividend yield of 6.5%.

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It's easier, theoretically, for a small business to grow its profit from $10 million to $20 million because it shouldn't be facing size constraints in its market. I'd say it's a lot harder for a huge business to grow its profit from $10 billion to $20 billion due to its large size.

Plenty of promising ASX shares have soared this year, making them less appealing, but there are a handful of stocks that still look good value to me. I'm going to talk about two of them below.

Step One Clothing Ltd (ASX: STP)

Step One describes itself as a direct-to-consumer online retailer for innerwear. It offers a range of high-quality, organically grown and certified, sustainable, and ethically manufactured innerwear.

It looks much better value to me following a 21% decline of the Step One share price since 24 September 2024.

I think it's certainly possible the short term could be challenging if retail conditions worsen for Step One. Investors may have become wary following a partial sale of shares by the founder. However, that may not be a sign of any short-term issues.

The company's FY24 result was very promising – total revenue increased 29.7% to $84.5 million, the gross profit margin increased slightly to 80.8%, operating profit (EBITDA) jumped 50.8% to $18.1 million, and net profit jumped 43.9% to $12.4 million.

If we drill down, there were a number of positives. International growth was impressive, with US revenue growth of 261.5% to $5.5 million and UK revenue growth of 33.2% to $27.1 million. Women's revenue jumped 54% year over year to be 14% of total revenue (up from 11.5% in FY23).

With a growing international presence, the potential to expand to other countries (such as Canada) and rising profit margins, there's a lot to like about this small-cap ASX share's long-term prospects. I think the business can become much bigger in the coming years.

Rural Funds Group (ASX: RFF)

The Rural Funds share price has dropped more than 11% since 27 August 2024, and it has declined over 40% from January 2022.

This farmland real estate investment trust (REIT) owns various farm types, including cattle, almonds, macadamias, vineyards, and cropping.

Investors seem to be turned off agricultural assets at the moment, but I think this business can bounce back, particularly if/once the RBA starts reducing the Australian interest rate, perhaps next year.

Every result, Rural Funds tells investors what its underlying value is – the adjusted net asset value (NAV), which is the market value of the assets minus liabilities. At 30 June 2024, Rural Funds had a reported adjusted NAV of $3.14. This means the Rural Funds share price is trading at a huge 40% discount. I think that makes this small-cap ASX share very undervalued, combined with its solid rental profit generation.

Despite the high interest rate headwind, Rural Funds continues to generate solid rental profit. It's expecting to achieve 3.6% rental profit growth per unit in FY25, and it's trading at 16x FY25's estimated rental profit.

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While the ASX is known for industries like ASX bank shares and ASX mining shares, big names like Westpac Banking Corp (ASX: WBC) and Rio Tinto Ltd (ASX: RIO) won't necessarily deliver the strongest returns. There are plenty of good opportunities that are smaller.

Step One is an interesting, small business. It's a direct-to-consumer online retailer of innerwear. The company describes its products as "high-quality, organically grown and certified, sustainable, and ethically manufactured".

The Step One share price has dropped 10% since 24 September despite the company reporting good progress in recent results. I believe this is a good time to invest in the ASX small-cap stock at this better valuation for the long term.

There are a few reasons why I like it, which I'll outline below.

Strong revenue growth potential

When I consider a company's potential growth, I look for a compelling total addressable market (TAM). This means the company has a lot of room to grow from its current position.

The company isn't just an Australian business; it also has operations in the United Kingdom and the United States, both of which have much larger populations than Australia.

We saw that growth potential in FY24, with total revenue growth of 29.7% to $84.5 million, including UK revenue growth of 33.2% to $27.1 million and US revenue growth of 261.5% to $5.5 million.

The company is testing new countries such as Canada and Germany, which also have significantly more people than Australia and offer long-term growth potential.

The ASX small-cap stock is looking to expand its underwear range and grow with adjacent products, win new customers, and increase sales on established platforms and marketplaces and through retailers like John Lewis.

Operating leverage

Another important thing I want to see from a growing business is a rising profit margin. Operating leverage means the company benefits from becoming larger — beyond just higher revenue.

Investors typically focus on a business's profit, so it is appealing to be able to grow profit at a rapid pace. Profit generation also funds potential dividend payments.

Step One's overall revenue increased 29.7% to $84.5 million, and net profit increased 43.9% to $12.4 million. I don't expect profit to grow every year at that rate. However, I do believe earnings can keep growing if the company keeps expanding geographically.

Management alignment

Step One founder and CEO Greg Taylor recently sold around 9% of the company's issue capital. Although it's normally not a great sign to see management sell shares, Taylor still owns a significant amount of the business.

After the sale of the shares, it was disclosed that Taylor would retain approximately 57.9% of the business, remaining Step One's largest shareholder. The sale was driven by "strong investor demand and enhances liquidity and free float broadening the share register".

Success for regular investors is also good for the boss, so he's highly motivated to deliver for all Step One shareholders.

I think this ASX small-cap stock is being led by the right team to deliver success, and it's a bargain right now.

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In my opinion, the last couple of years have been a good time to invest in the stock market for income because higher interest rates have decreased asset prices and boosted the dividend yields of many of those stocks.

When a share price decreases, it increases the dividend yield. For example, if a business has a 6% dividend yield and then the share price falls 10%, the dividend yield becomes 6.6%.

But, the opposite effect may start happening when interest rates fall, which makes me believe that it could be better to buy ASX dividend shares in 2024 than wait for 2025. Let's take a look.

Why I'd pounce on ASX dividend shares now

Understandably, some investors may have been drawn to the safety of bonds and term deposits in the past year or two because they offer much higher interest rates. They could earn satisfactory returns from the least risky assets.

But, central banks are now starting to cut interest rates. Both the US Federal Reserve and Reserve Bank of New Zealand recently cut their interest rate by 50 basis points (0.50%).

In contrast, the Reserve Bank of Australia (RBA) doesn't appear close to cutting its own interest rate and has indicated that a cut in 2024 is unlikely.

However, if we wait until the RBA cuts rates to invest, share prices may have already adjusted higher, and it may be too late to grab that higher yield. Some investors seem to already be bidding up rate-sensitive yield plays.

For example, since August this year, the Charter Hall Long WALE REIT (ASX: CLW) share price has climbed 18%. This has already pushed down the diversified real estate investment trust's FY25 distribution yield to 6.2% based on a guided 25 cents per unit. On 6 August, the FY25 yield would have been 7.3%.

Interest rate cuts could also help boost the share prices of ASX dividend shares, as we're already seeing.

Which passive income stocks I'd look at

Going with the theme of interest rate-sensitive stocks, I believe certain ASX dividend shares could benefit from a boost in profitability, and investors may decide to pay a higher multiple for their earnings.

Some of the companies that appeal to me include KFC franchisee operator Collins Foods Ltd (ASX: CKF), furniture retailer Nick Scali Limited (ASX: NCK) (which recently expanded to the United Kingdom), and industrial property business Centuria Industrial REIT (ASX: CIP).

Also on my list would be building product and diversified asset business Brickworks Limited (ASX: BKW), youth apparel retailer Universal Store Holdings Ltd (ASX: UNI), sustainable underwear retailer Step One Clothing Ltd (ASX: STP) and investment conglomerate Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).

I think if I built an ASX dividend share portfolio with these companies, it'd deliver a solid, growing stream of passive income. And I'm hopeful of elevated capital growth when interest rates come down in 2025 and beyond.

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Businesses that are expanding globally have a large growth runway because of how big the addressable market is. Australia is a great country, but it has a relatively small population. If a company can successfully expand overseas, then it has a bigger growth horizon.

I believe the two ASX shares below are exciting opportunities that could deliver significant returns over the next five years.

Step One Clothing Ltd (ASX: STP)

This company manufactures what it calls "high-quality organically grown and certified, sustainable and ethically manufactured underwear".

Step One's product range clearly resonates with customers, and its financial performance in FY24 was excellent. Revenue rose 29.7% to $84.5 million, and net profit increased by 43.9% to $12.4 million.

The company generated a majority of its revenue from Australia and grew sales within the country by 18.3% to $50.9 million. But, excitingly, it also has a rapidly growing presence in the larger markets of the United Kingdom and the United States.

UK revenue in FY24 rose 33.2% to $27.1 million, while US revenue jumped 261.5% to $6.5 million.

I am optimistic about the company's ability to grow in international markets in the coming years. Other countries like Canada could also make sense for future expansion. The ASX share has demonstrated the ability to grow profit faster than revenue, so long-term profit generation looks compelling.  

Siteminder Ltd (ASX: SDR)

Siteminder says it's the only software platform that unlocks hotels' full revenue potential, with its all-in-one hotel management software, Little Hotelier, making "the lives of small accommodation providers easier".

It's already a global business, with offices across Bangalore, Bangkok, Barcelona, Berlin, Dallas, Galway, London and Manila.

Siteminder is targeting 30% organic annual revenue growth in the medium term. FY24 revenue was solid, with total revenue rising by 26% to $190.7 million and annualised recurring revenue increasing by 20.8% to $209 million. Impressively, 44,500 properties are now using Siteminder, so lot of subscribers are liking its offering.

The company did make a net loss of $25.1 million in FY24, but it was a $24.2 million improvement from FY23. It made a positive underlying profit (EBITDA), with an improvement of $22.8 million to $0.9 million.

If this ASX share keeps boosting revenue at more than 20% per annum, it could grow into a significantly bigger business in the coming years. The nature of software means that its profit margins could increase significantly in the next few years and potentially surprise the market.

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