2 cheap ASX shares that value investors could love

Key points

• Adairs and Dusk are seeing share price falls, but could be cheap ASX shares to consider
• Adairs is a leading furniture and homewares retailer, with several strategies for long-term earnings growth
• Dusk is a leading fragrance retailer which has a growing store network, it’s expanding its operations after the Eroma acquisition

Value investors may like the cheap ASX shares that are discussed below.

Cheap companies may not always be the best value. However, there are some that may offer long-term growth potential, a low price/earnings ratio and a high dividend yield. That combination of factors could be useful for shareholders over time.

With that in mind, it might be a good time to consider these two ASX stocks during this volatility:

Adairs Ltd (ASX: ADH)

Adairs is retail share that sells a wide array of homewares and furnishings, as well as furniture through Mocka and Focus on Furniture.

After a troublesome trading update for the first half of FY22, the Adairs share price has dropped 22%. However, whilst profitability was hit from store closures and supply chain problems, the business also reported increased sales.

Group like for like sales were up 2.7%, adjusting for store closures and excluding Focus. Overall group online sales excluding Focus were up 8.2% to $97.6 million, representing 42.5% of group sales. Adairs online sales went up 1.6% and Mocka sales grew 22.8%.

Management are confident about the longer-term growth prospects of the cheap ASX share with the commissioning of its new national distribution centre, upsizing selected stores, continual expansion of its range and adding to omni channel capabilities.

Focus has seen good trading, with $12.5 million of sales, including $1.6 million from its online channel.

Underlying earnings before interest and tax (EBIT) is expected to be between $32 to $33 million in HY22, compared to $22.6 million in HY20 and $60.2 million in HY21.

Whilst Commsec’s forecasts may adjust after this update, the FY24 projection (which starts a year and a half away) suggests the Adairs share price is valued at 6x FY24’s estimated earnings with a potential grossed-up dividend yield of 16% for FY24.

Dusk Group Ltd (ASX: DSK)

Dusk is another retail business that has provided a trading update, but could be a long-term opportunity.

For readers that don’t know what Dusk does, it sells home fragrance products – candles, ultrasonic diffusers, reed diffusers and essential oils, as well as fragrance-related homewares.

Like plenty of other retailers, its trading update showed disruptions from store closures and COVID impacts. Its store network finished at 128 stores, an increase of six new stores.

Whilst store sales were down 12% to $80 million year on year, it was an increase from $58.6 million in the first half of FY20. Online sales were up 4.3%, after cycling growth of 120%.

The cheap ASX share’s pro forma gross profit margin increased from 67.7% to 68%. Dusk notes that the acquisition of Eroma has continued to trade well and is expected to be strong contributor in both profit and earnings per share (EPS) terms in the first full year of ownership.

Eroma is a leading supplier of candle making inputs, including fragrance oils, waxes, packaging, containers and candle making kits. The enterprise value was $28 million. Pro forma EPS accretion in year one is expected to be 20%, before synergies.

Over the last six months, the Dusk share price has fallen 25%. Commsec puts Dusk shares at under 7x FY24’s estimated earnings with a possible FY24 grossed-up dividend yield of 14.8%.

The post 2 cheap ASX shares that value investors could love appeared first on The Motley Fool Australia.

More reading

• Dusk (ASX:DSK) share price slides as 5,483 trading days get smoked
• Why the Adairs (ASX:ADH) share price is crashing 17% lower today
• 2 ASX dividend shares with large and growing yields
• These 3 ASX retail shares have grossed-up dividend yields over 8% right now
• 2 buy-rated ASX dividend shares with fully franked yields

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended ADAIRS FPO. The Motley Fool Australia owns and has recommended ADAIRS FPO. The Motley Fool Australia has recommended Dusk Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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