ASX shares that were favourite buys well during the COVID-19 crash have suffered a reversal of fortunes.
The question is whether these fallen angels now represent value.
The irony shouldn't be lost on investors as these ASX shares have been the antithesis of value given their lofty valuations.
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Best ASX COVID winners turn losers
Some obvious examples of high flying COVID winners that have dropped out of favour recently include tech darlings like the Afterpay Ltd (ASX: APT) share price and Altium Limited (ASX: ALU) share price.
You can also add in ASX retailers that have been able to make the most of the pandemic lockdown. These are the Kogan.com Ltd (ASX: KGN) share price, Coles Group Ltd (ASX: COL) share price and Adore Beauty Group Ltd (ASX: ABY) share price.
There's heated debate on whether the recent downfall in these ASX shares represent a buying opportunity. But UBS is convinced that at least one of them is a "buy" now.
Swan turns into ugly duckling
This is online beauty products retailer Adore Beauty. The Adore Beauty share price tumbled to its lowest point since its October 2020 IPO on Friday when it closed at $3.68.
Investors got spooked by its latest trading update even though management expected FY21 sales growth of 43% to 47%. This translates to $173 million to $178 million.
But this isn't enough to keep investors onside. UBS acknowledged that the updated guidance implied a 2HFY21 sales figure of between $77 million and $82 million.
That's 3% to 9% below UBS' estimates and between 11% and 16% under consensus forecasts.
Why you should buy this former ASX COVID winner
ASX shares trading on sky-high valuations have no room to disappoint. This is especially so in the current environment when investors are increasingly starting to question if equities have overshot their fundamentals.
UBS does not share these concerns regarding the Adore Beauty share price. If anything, it believes the sell-off is overdone.
"While the slowdown in momentum was more than expected, our medium-term thesis has not changed, with the stock offering an attractive entry point," said UBS.
"It has an opportunity to ride structural tailwinds (online beauty market growing ~26% pa), lift brand awareness and benefit from maturing customer cohorts."
Adore Beauty share price looking attractive
The broker pointed out that the Adore Beauty share price is trading around 45% below its IPO price. It is also cheaper than the Temple & Webster Group Ltd (ASX: TPW) share price on an enterprise value/sales to growth ratio.
UBS reiterated its "buy" rating on the Adore Beauty share price with a 12-month price target of $5.60 a share.
