Webjet Limited (ASX: WEB), Thorn Group Ltd (ASX: TGA) and Myer Holdings Ltd (ASX: MYR) are three ASX shares that appear cheap… but are they leading investors into a value trap?
Webjet Limited (ASX: WEB)
Last year’s acquisition of Destinations of The World for USD$173 million has cemented Webjet as one of the biggest players in the online travel space and looks set to drive revenue growth in the coming years.
The Webjet share price has come under pressure recently due to the collapse of UK-based travel business Thomas Cook and a ratcheting down of profit expectations for the coming 24 months with broker Credit Suisse recently slashing its valuation price target for the company by more than 20%.
At 23x FY19 earnings/profit, and with further growth all but assured thanks to the Destinations of The World acquisition, Webjet looks attractively priced on face value.
I have been interested in the business for a long time but always had lingering doubts around their ability to stave off the competition in the intense online travel battlefield.
I think if Webjet shares were to fall below $10 they would potentially make for a great long-term buy.
Thorn Group Ltd (ASX: TGA)
Thorn Group is a diversified financial services organisation which owns the Radio Rentals chain and provides alternate consumer and commercial financing solutions, consumer and commercial leasing products and fully integrated debt collection and receivables management.
It’s been a tough ride for long-term shareholders with the share price falling more than 90% over the past five years. The company recently completed a capital raising with the proceeds used to pay down debt and settle a class action against the company.
Whilst the outlook remains bleak, with revenue set to decline this financial year, the Thorn Group share price is at very depressed levels trading at significantly less than current book value.
A capital raising to pay down debt is hardly inspiring but it does sure up the ongoing operations of the business and gives new management time to implement their turnaround strategy.
It’s certainly not for the risk-averse but Thorn Group could be worth a closer look for those willing to stomach higher risk investments. Just be sure to apply suitable portfolio limits.
Myer Holdings Ltd (ASX: MYR)
The iconic department store retailer has had a difficult time since listing on the ASX 10 years ago. Trading at more than $4 in late 2009, Myer shares are down more than 80% since then — despite a good run this year.
The ongoing shift from bricks and mortar to online shopping has placed significant pressure on Myer’s profits. The online marketplace has brought with it fierce competition which has squeezed margins and made high leasing costs increasingly difficult to sustain.
Myer has been trying to cut costs amid falling sales. Tight cost control last financial year led to a return to profitability despite like-for-like sales falling by 1.3% excluding Apple products (which the business exited in May 2019).
Despite the Myer share price being up 40% this year it still trades at just 0.8x net asset value.
Buy, Hold, Sell
Clearly, all of these shares are facing challenges. But, that is precisely why they are going cheap. It’s important to mitigate risk within your portfolio by setting appropriate portfolio limits, especially when looking at higher risk investments. Still, it could be time to take a closer look.
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At the time of publishing, Luke has no financial interest in any companies mentioned.
