Loss-making ASX shares: Big investment opportunity or extreme risk?

2022 has been an extremely volatile year for a number of ASX shares. Are the lower prices of businesses that are burning cash too attractive to ignore? Or are they too risky?

There are plenty of businesses that have seen big falls.

At the time of writing, before Thursday’s trading, these are some examples of the falls we’ve seen in 2022:

The RPMGlobal Holdings Ltd (ASX: RUL) share price has dropped 23%.

The Whispir Ltd (ASX: WSP) share price has declined 53%.

The Bigtincan Holdings Ltd (ASX: BTH) share price has fallen 31%.

Of course, every fall is different and each investor may have a different thought about why they sold (or bought) at a lower price.

However, some investors may be thinking it’s possible that some of these unloved names could have been oversold. Only time will tell for sure, but let’s take into account some thoughts from some expert investors on the situation.

Forager is a fund manager that has a reputation for often finding sold-off opportunities.

The Forager Australian Shares Fund (ASX: FOR) investment team recently gave some comments discussing the types of companies the fund is currently invested in:

On the current portfolio and RPMGlobal

Forager senior analyst Alex Shevelev said:

Some of these investments are in businesses that are currently loss-making. And you might be asking why a value biased fund manager is investing in companies that are loss-making. Well, we’ve actually had quite a bit of success in this space over the last 10 years of the existence of the fund.  Jumbo Interactive Ltd (ASX: JIN) a couple of years back was a great example [and] RPM is a good more recent example. These companies are frequently misunderstood, and it’s exactly because of that short-term lack of profitability that the companies can sometimes build up significant long-term value.

On Whispir

The Forager analysts pointed out to investors that the ASX shares they are interested in have proven business models. They have a proven product that “solve real customer needs and that already generate decent and growing amount of revenue.”

Forager senior analyst Gaston Amoros said this about one of the holdings:

Just to give you an example, Whispir already caters to some very large customers and if clearly addressing need to manage communications with customers and employees more efficiently and effectively.

What about Bigtincan?

Shevelev gave further comments on the types of ASX shares they’re looking at and another holding:

There’s also a lot of recurring revenue in these businesses. Now, customers tend to stay very sticky to these products. They’re often mission critical and they’re very difficult to rip out and replace with competitive products. So, a company like Bigtincan, for example, the sales enablement business, they have the vast majority of their customers from the prior year stay with them.

Foolish takeaway

So, it’d probably be wise to think individually about each business that has been sold off. But, ASX shares that have proven business models, have loyal customers, are making revenue and address a key need could be interesting to look at in this environment according to the investment thoughts of Forager.

The post Loss-making ASX shares: Big investment opportunity or extreme risk? appeared first on The Motley Fool Australia.

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More reading

• Why is the Whispir share price tumbling 10% on Monday?
• ‘Great long-term investment’: Expert names small-cap ASX share to buy for cheap

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 positions in and has recommended BIGTINCAN FPO, RPMGlobal Holdings, and Whispir Ltd. The Motley Fool Australia has positions in and has recommended BIGTINCAN FPO. The Motley Fool Australia has recommended RPMGlobal Holdings and Whispir Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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