The 2 ASX shares in this article look much cheaper today than a few months ago. Could stocks like Appen Ltd (ASX:APX) be great buys?
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There are many ASX shares that look cheaper than they were in recent history. Lower prices could suggest that they’re better value.
Plenty of ASX businesses have seen their share prices recover back to their pre-COVID-19 prices.
But in recent weeks there are some ASX shares that have actually fallen. Yet they’re still predicting longer-term growth. So there’s a chance they could be good buying opportunities right now:
Appen Ltd (ASX: APX)
Appen is one of the ASX’s leading technology shares. It is assisting large tech businesses with AI and machine learning development. The Appen share price has fallen 27% since 26 August 2020 (which was just before it reported).
In the recent FY20 half-year result it reported that revenue grew by 25% to $306.2 million. Statutory earnings before interest, tax, depreciation and amortisation (EBITDA) jumped by 44% to $50.9 million, though underlying EBITDA only increased 6% to $49.1 million.
Appen explained that underlying EBITDA excluding growth investments rose 35% to $62.5 million to include its investments in sales and marketing, China, engineering and the government market.
Statutory net profit rose 8% to $22.3 million and underlying net profit dropped 12%.
Appen’s guidance for FY20 is that full year underlying EBITDA will be in the range of $125 million to $130 million. The full year underlying EBITDA margin is expected to be in the high-teen percentages.
At the current Appen share price the ASX share is trading at 30x FY22’s estimated earnings. The Figure Eight acquisition improved the quality of the business. However, I’m not sure if Appen is worth buying – I’m not sure how much of a growth runway Appen has.
Australian Ethical Investment Limited (ASX: AEF)
The ethical fund manager is another business that has been drifting downwards. The Australian Ethical share price has fallen just over 50% since 19 June 2020. That’s a big drop, although it’s important not to anchor your expectations to a previous share price.
I think Australian Ethical could be a solid buy at today’s prices.
The ASX share reported FY20 profit rose by 46% to $9.5 million after funds under management (FUM) rose 19% to $4.05 billion. The fund manager experienced net inflows of $660 million, which was more than double the net inflows in FY19.
Excluding performance fees, revenue and underlying profit after tax (UPAT) both increased by 15% despite Australian Ethical lowering its fees for its members.
Australian employees (who earn enough) benefit from a mandatory superannuation contribution of 9.5% of the value of their wages. That should help steadily grow Australian Ethical’s FUM, particularly if it can keep growing its member numbers. In FY20 the ASX share saw its customer base grow by 20% with managed fund customers increasing by 16% and super members growing by 20%.
I think the fund manager will be able to attract and retain customers. Not only does it offer compelling investment returns, but its net promoter scores (NPS) are among the best in the industry. For super it has an NPS of 63 and in managed funds it has an NPS of 58.
Australian Ethical’s solid report wasn’t enough to send the share price back to $6 or more. But I like that the company’s balance sheet continues to strengthen with its cash level rising from $18.8 million to $21.4 million.
The strong balance sheet and rising profit allowed the business to declare a final ordinary dividend of 2.5 cents per share and a special performance fee dividend of 1 cent per share, bringing the full year dividend to 6 cents per share, up 20%.
Both of these ASX shares have dropped heavily in recent weeks, I have a stronger conviction in Australian Ethical at the current share price compared to Appen. I believe the ethically-focused manager has plenty of growth potential with ethical investing rising in prominance.
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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Australian Ethical Investment Ltd. The Motley Fool Australia owns shares of Appen Ltd. The Motley Fool Australia has recommended Australian Ethical Investment Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.