The S&P/ASX 200 Index (ASX: XJO) is close to an all-time high, as shown on the chart below. But that doesn't mean there aren't undervalued ASX shares to find.
There are a few ways to show that an ASX share is cheap, in my view.
Sometimes, it's possible to find ASX shares that are priced too cheaply for how much earnings they are generating now or could generate in the next few years.
I also like to look at undervalued ASX shares where the share price is substantially cheaper than the business' net asset value (NAV) or net tangible assets (NTA).
When I look at the below three businesses, they seem like undervalued ASX shares to me.
When I think about some of the leading ASX growth shares, they all trade on relatively high price-earnings (P/E) ratios. Names like Pro Medicus Ltd (ASX: PME) and WiseTech Global Ltd (ASX: WTC) have P/E ratios of over 100.
But, GQG is growing at a good rate and is trading at a very reasonable price, in my view.
As a fund manager, the direction of the funds under management (FUM) is critical for earnings growth because GQG earns nearly all of its revenue from its (reasonable) management fees rather than performance fees.
In the FY24 first-half result, the business reported that its average FUM increased 46.5% to US$139.5 billion, and its distributable earnings climbed 53.7% to US$209.9 million.
The company recently reported its September 2024 update, which showed its FUM had risen to US$161.6 billion, 16% higher than HY24's average FUM. That suggests to me that the following two six-monthly results will show average FUM and earnings growth, even if the actual FUM stabilises. The month of September saw US$2.2 billion of net inflows, which bodes well for FUM momentum if investors keep adding money.
According to the forecast on Commsec, the GQG share price is valued at 11x FY25's estimated earnings, with expectations of earnings growth of more than 16% in FY25. I think that's an attractive earnings multiple, considering the profit could keep growing at a good rate for the next few years. This is an appealing, undervalued ASX share, in my opinion.
According to Bailador, this company invests in small technology businesses that have international revenue generation, typically have recurring revenue, attractive unit economics and have "huge market opportunity".
It recently made a new investment – Bailador invested $7.7 million into Hapana, a software platform for the fitness and wellness sector that allows gyms and fitness studios to "better engage and communicate with their members."
Bailador also announced this week it has completed a $3 million follow-on investment in Rosterfy, a platform that enables not-for-profit (NFP) organisations, government bodies and mass-scale sports and events to recruit, screen, train and schedule their volunteer communities.
I think Bailador has a good track record of investing in promising businesses early on and making a large profit when they sell them. For example, its $8.4 million investment in Instaclustr turned into a $118.4 million sale, representing an internal rate of return (IRR) of 80%.
According to Bailador, it had a post-tax NTA of $1.57 at August 2024, so the current Bailador share price is trading at a discount of approximately 20%, making it an undervalued ASX share in my eyes.
This is one of my favourite real estate investment trusts (REITs) – it owns a portfolio of industrial properties such as distribution centres.
There is high demand for industrial properties, there is limited space in our cities, and a number of growth trends are increasing demand such as e-commerce, an onshoring of supply chains and Australia's growing population.
In the FY24 result, the business reported positive re-leasing spreads of 43% across 39 transactions. In other words, those properties are now earning significantly more rent than the old contract.
It reported an NTA of $3.87 at June 2024, so the Centuria Industrial REIT share price is at a discount of approximately 17.6%. This makes it an undervalued ASX share, in my opinion.
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