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Recent market trends have shown a notable downturn, marking the most significant decline since the disruptions experienced in 2022. While such volatility can create unease, it also presents opportunities to acquire high-quality stocks at attractive valuations.. Here’s a closer look at three ASX stocks currently trading at substantial discounts and exhibiting potential:
AVITA Medical (ASX:AVH)
Discount: The stock is currently trading at a 53% discount to fair value estimate of $5.40 as of August 6, 2024.
Overview: AVITA Medical specializes in advanced burn treatment solutions, particularly its RECELL system. This innovative product can create a spray-on skin from a small sample of the patient’s own skin, providing a less invasive alternative to traditional skin grafts. Despite its limited commercial success to date, RECELL has demonstrated significant clinical benefits and cost savings compared to traditional treatments. The system’s relaunch in the U.S. and its approval for treating 2nd and 3rd-degree burns in both pediatric and adult patients highlight its potential. Analysts estimate AVITA could capture up to 34% of the market by fiscal 2026. However, given its dependence on a single product and the challenges associated with commercial rollout, the stock carries a high level of uncertainty. Despite these risks, the current discount suggests potential value.
Domino’s Pizza Enterprises Ltd (ASX:DMP)
Discount: Domino’s stock is trading at a 48% discount to fair value estimate as of August 6, 2024.
Overview: Domino’s Pizza Enterprises holds the master franchise for Domino’s Pizza across multiple countries, including Australia, New Zealand, Japan, and several European nations. The company has leveraged its global brand recognition and innovative marketing strategies to maintain a competitive edge. Recent adjustments to its product range, including healthier and gourmet options, alongside a strong push into online ordering, are driving growth. Domino’s also benefits from its capital-light business model as a master franchisee, with future royalty payments expected to be partially franked dividends. The company’s expansion prospects are substantial, with opportunities to significantly increase its store base in Australia and Europe over the next decade. The stock’s current discount reflects temporary market challenges rather than a fundamental weakness.
Tabcorp Holdings Ltd (ASX:YAH)
Discount: Tabcorp shares have recently fallen due to concerns about cyclical downturns in wagering and the sudden resignation of its CEO.
Overview: Tabcorp operates a broad network of physical wagering venues, including racing tracks, hotels, and TAB agencies. Although the rise of online betting has impacted the traditional wagering business, Tabcorp remains a significant player in the sector. The shift to online betting accelerated by the COVID-19 pandemic has introduced greater competition, but also provides opportunities for scaling and improved margins. Analysts expect Tabcorp’s online segment to grow, with operating margins projected to rise from 5% to 11% over the next decade. The company’s balance sheet benefits from the demerger of The Lottery Corporation in 2022, which eliminated much of its debt. Despite facing risks such as regulatory changes and faster-than-expected declines in physical wagering, Tabcorp’s strong cash flow and market position offer a solid foundation for future performance.
These stocks represent potential opportunities for investors willing to look beyond current market turbulence. Each company brings unique strengths and growth prospects that could offer significant returns in the long term.
