Could these devastated ASX shares make a roaring comeback?

With interest rates rising and investors anxious about an economic downturn, ASX shares in the retail sector have been hammered for most of this year.

While the devaluation has affected the entire industry, it's hit online retailers especially hard.

Technology shares have also plunged in 2022, so it's little wonder businesses that intersect between the two sectors would struggle to maintain their valuations.

Analysts at Firetrail, in a memo to clients, took US giant Shopify Inc (NYSE: SHOP) as an example of what's happened globally.

"Shares in US e-commerce platform Shopify fell over 14% in late July after the company announced it was cutting 10% of its workforce," read the memo.

"Shopify, like many other online retailers, had bet that COVID would permanently shift the channel mix away from physical retail. However, now that the US economy has reopened, e-commerce adoption has fallen back to the pre-COVID trend line."

Locally, the Firetrail team cited how Temple & Webster Group Ltd (ASX: TPW) and Kogan.com Ltd (ASX: KGN) have seen their share prices halve so far this year. Redbubble Ltd (ASX: RBL) has lost a painful 70%.

A golden buying opportunity for online retail shares?

But, perhaps in a contrarian view, Firetrail questioned whether this presents a buying opportunity for online retail stocks.

"Assuming a reversion to e-commerce adoption growth in 2023/2024, could value be emerging in the online retailers?"

The Motley Fool chief investment officer Scott Phillips agreed with this proposition.

"It seems to me that the market has decided that, because the economy might slow (maybe even dramatically) many – most – retail stocks are worth nearly nothing," he said.

"But let's say you have a 5, 7 or 10 year time horizon. As long as these businesses aren't significantly or permanently damaged by a recession, they'll come out the other side. They'll probably go on to deliver even higher sales and profits in the years ahead."

Already some investors are waking up to this opportunity, sending some ASX shares to the moon in a hurry over the past few weeks.

Temple & Webster has enjoyed a 57% rocket upwards over the past month, Kogan has travelled 39% up, and Cettire Ltd (ASX: CTT) shares are a crazy 132.5% higher.

What are the chances that business is lost forever?

According to Phillips, the devaluation seen this year assumes a permanent loss of business.

But the probability is that that's not true over a long period, even if a recession rudely interrupts for a brief time.

"If you could buy an asset that might struggle for a short time, then go back to its successful past… well, a share price that suggests relative Armageddon is likely to be, in hindsight, cheap."

The Firetrail team noted how Woolworths Group Ltd (ASX: WOW) took this attitude when it recently decided to buy online retailer Mydeal.Com Au Ltd (ASX: MYD).

"The company offered a 61% premium to market [price] to acquire listed marketplace Mydeal.com.au in May."