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Investors on the lookout for undervalued ASX growth stocks with substantial potential should consider the following two stocks. Despite recent declines, these companies present attractive opportunities for bargain hunters willing to 'buy the dip' in the market.
- Lovisa Holdings Ltd (ASX:LOV)
Lovisa, an ASX retail share specializing in affordable jewelry for younger shoppers, has seen its share price decline by 20% in 2023 and over 30% since April 2023. The key opportunity lies in the company's aggressive store expansion strategy. With around 170 stores in Australia and 800 outlets globally as of FY23, ASX LOV plans to significantly increase its presence in various markets, including recent entries into Canada, Mexico, Spain, Hong Kong, and Taiwan.
The current growth rate in store numbers suggests that Lovisa's global network could double by FY28, potentially leading to a substantial financial boost. Projections on Commsec value the Lovisa share price at 19 times FY25's estimated earnings, with a potential partially franked dividend yield of 4.3% in FY25.
- Pinnacle Investment Management Group Ltd (ASX:PNI)
Pinnacle is involved in investing in fund managers initiating their own funds management businesses. Despite a 15% decline in the Pinnacle share price since August 2023 and a 50% drop since November 2021, the company offers an appealing investment opportunity. The business model involves supporting fund managers in various areas such as seed funding, distribution services, legal, and compliance.
Market uncertainty can impact both existing funds under management (FUM) and investor confidence, creating buying opportunities. ASX PNI has seen positive trends in underlying net inflows, with $3.1 billion in net inflows during the FY23 second half. The company's diverse portfolio of management investments, including a Canadian-based manager, adds to its growth potential.
Commsec projections value the Pinnacle share price at under 20 times FY25's estimated earnings, with a possible FY25 grossed-up dividend yield of 6.5%. Since initiating dividend payments in 2016, Pinnacle has consistently grown its dividend, offering an attractive income opportunity for investors.
In conclusion, both Lovisa Holdings and Pinnacle Investment Management Group represent compelling choices for investors seeking undervalued growth stocks with significant potential for future returns
