Potential buys: 2 compelling ASX shares

There are some very compelling ASX shares to consider which have plenty of potential.

The ASX share market sell-off over the last several weeks has opened up the possibility to be able to jump on these companies at better value.

Businesses with significant plans for future operational growth give themselves a better chance of profit growth.

Here are two strong contenders:

Bubs Australia Ltd (ASX: BUB)

Bubs specialises as an infant formula business, particularly goat milk infant formula. It also offers goat milk products for adults and organic, grass-fed cow milk infant formula.

The ASX share said has said that it’s aiming to become the leading global family nutrition brand from Australia and it’s leading the return to growth for its category.

Bubs recently reported its quarter for the three months to 31 December 2021. Gross revenue of $19.9 million was up 56% year on year and 8% quarter on quarter. The half-year revenue to December 2021 was $38.5 million, up 73% year on year and 57% half-on-half.

The Bubs infant formula segment earns a much higher profit margin than the adult goat products. In the latest quarter, the Bubs infant formula revenue rose 83% year on year.

There were concerns about Chinese demand in 2021. But Chinese demand is now returning in a big way for the ASX share. Chinese gross revenue in the quarter was up 121% year on year and up 21% quarter on quarter.

The ASX share is steadily expanding its geographic reach and planting seeds for future growth. Bubs product sales to international markets outside of China were up 66% year on year and up 141% quarter on quarter. The Bubs family nutrition new product portfolio has been shipped to Africa, China, Singapore and ‘Pacific Islands’.

Another positive from the quarterly update was $2.4 million of operating cashflow.

It’s currently rated as a buy by Citi, with a price target of $0.68.

Accent Group Ltd (ASX: AX1)

Accent is a large shoe retailer in Australia. It owns some retailing brands, like Stylerunner, The Athlete’s Foot and Glue Store. It’s also the distributor for some international brands like VANS, Skechers, Dr Martens and Reebok.

The ASX share has a dual strategy of growing its online sales whilst also growing its store network.

Lockdowns and COVID-19 have impacted sales and profitability in the first half of FY22, but management were pleased with the gross profit margin improvement in December, which was stronger than expected.

Over the longer-term it’s expecting growth to be funded by various tactics including growing its owned brands, expanding with new businesses as well as its ‘exclusive distribution agreement’ brands.

In FY21 it opened 90 stores. During FY22 it’s expecting the store network to grow to more than 700 stores across Australia and New Zealand.

It’s currently rated as a buy by UBS, with a price target of $2.75. Looking at the FY23 projections, UBS thinks the Accent share price is valued at 13x FY23’s estimated earnings with a forecast grossed-up dividend yield of 9%.

The post Potential buys: 2 compelling ASX shares appeared first on The Motley Fool Australia.

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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. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Accent Group and BUBS AUST FPO. 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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