I love looking at ASX shares that have been beaten up because you can buy them at much cheaper valuations.

Sometimes, businesses can drop because of a short-term issue that resolves itself sooner than expected. Of course, sometimes, businesses undergo permanent changes that may be detrimental to the company. Identifying which one a business is going through can be the difference between great and mediocre returns.

I'm going to look at two ASX shares that have suffered, but where I also see potential for strong returns thanks to a recovery.

Premier Investments Ltd (ASX: PMV)

Premier Investments is a retail company that owns a number of brands, including Smiggle and Peter Alexander.

It's currently in the process of selling its apparel brands to Myer Holdings Ltd (ASX: MYR), which includes Just Jeans, Jay Jays, Portmans, Jacqui E, and Dotti.

On 13 January 2025, Premier Investments reported that its apparel business is expected to make $31 million to $35 million of operating profit (underlying EBIT), $16 million to $20 million less in the first half of FY25 compared to the first half of FY24. That's despite the gross profit margin for this business being "broadly flat" year over year.

The Premier Investments share price is down 13% from 10 January and around 22% from 5 December 2024. Considering the potential of the retained businesses (Smiggle and Peter Alexander), I think the ASX share looks much better value now.

The reason why I'm optimistic about the long-term future of this business is its global aspirations for both Smiggle and Peter Alexander. For example, Peter Alexander recently launched into the UK – it planned to open three stores before Christmas, and it sees opportunities for up to 10 new stores in the short term as part of the initial launch plans. The UK has a population of more than double that of Australia and New Zealand, so it's an exciting market for the company.

There are lots of opportunities for Premier Investments to add many more global stores to the Smiggle network. Adding global scale should help in numerous ways, including rising profit margins.

Hence, I think this is a great time to look at Premier Investments shares at this lower price.

Webjet Group Ltd (ASX: WJL)

Webjet is a leading online travel agency (OTA) business in Australia. It also has a vehicle rental business called GoSee and a tech offering called Trip Ninja which automates the highly manual process of selling complex multi-stop travel itineraries.

The Webjet share price is another example of a heavy decline in recent times – it's down 13% in 2025 to date and around 36% from September 2024.

In late November 2024, the business reported in its FY25 half-year result that its total transaction value (TTV) declined 8% to $752 million, following an 8% decrease in bookings.

Webjet blamed the challenging macroeconomic conditions impacting domestic flight bookings.

One of the most impressive things about the ASX share's result was that despite the decline in TTV, the business reported higher Webjet OTA revenue per booking, which was now higher than before the COVID pandemic, thanks to higher margin ancillary products now accounting for 35% of revenue and international flight bookings representing 20% of total flight bookings.

Due to that dynamic, HY25 revenue fell 1% to $72 million, and operating profit (EBITDA) rose 1%.

When economic conditions improve, I think Webjet's profitability and sentiment about the business could significantly increase. The business has invested in technology to help improve its margins, which has already helped its overall financials.

The Webjet group managing director Katrina Barry said:

Looking forward, the macro-economic environment continues to be challenging and given our brands are consumer facing, Webjet Group will not be immune. However, we remain optimistic on the broader medium-term outlook. As outlined in our demerger investor presentation, we have clear and robust strategic priorities to deliver growth and enhance our leadership positions in online travel marketplaces.

Our planned initiatives are progressing well with several showing exciting potential and we are accelerating investment in technology platforms and other key growth drivers. With the demerger now behind us, Webjet Group is solely focused on growth, and we look forwarded to sharing more about our plans to take the Company to the next horizon at our Strategy Day in March 2025.

I'm optimistic about how things could turn around for the company in the next year or two, assuming economic conditions do start improving for the ASX share.