Plenty of ASX shares have dropped this year. I think that investors may be able to do well by thinking differently to the market and looking at beaten-up ASX shares.
While investing with a contrarian mindset isn't always wise, it could work with unloved businesses that may be able to keep growing their revenue (and hopefully profit).
Now that many names are at much lower valuations, the entry price seems more compelling.
Some names may see their growth slow in FY23 as inflation and higher interest rates bite. But I don't think economic conditions will keep worsening. At some point, hopefully sooner rather than later, the economy will look promising again.
With that in mind, I think the following two ASX shares are promising investments.
Adore Beauty Group Ltd (ASX: ABY)
Adore Beauty is Australia's largest online beauty store, with more than 270 brands and over 12,000 products. However, it also says that its offering includes integrated content and marketing. For example, it has multiple podcasts going to connect with customers – the distribution costs for these podcasts are comparatively low.
I like that the business is seeing a growing number of returning customers, which reduces reliance on paid marketing channels. In the FY23 first quarter, its number of returning customers increased by 85% on a two-year basis, and was up 14% on the prior corresponding period.
Over the long term, the ASX share is planning to add new products, expand into new markets and geographies, and consider acquisitions. It's planning to grow its gross profit margin by selling owned brands with higher margins, getting improved supplier terms, and expanding into attractive adjacencies.
In the long term, beyond FY27, the company is aiming for owned brands to contribute at least 15% of revenue and achieve an overall earnings before interest, tax, depreciation and amortisation (EBITDA) margin of at least 10%.
In 2022 to date, the Adore Beauty share price has fallen 56%, making the long-term value much better in my eyes.
Temple & Webster Group Ltd (ASX: TPW)
This is another e-commerce ASX share that is currently going through a bit of a setback with investor confidence.
When the company announced its FY22 result, it said that it "remains committed" to its profitable growth strategy and that it's confident it can achieve its goal of becoming Australia's largest retailer of furniture and homewares – offline or online.
While it will be tough to beat the locked-down revenue generation of the first half of FY22 when it reports its FY23 first-half result, the business is expecting "a return to double digit growth during FY23" once it finishes lapping COVID lockdowns from the year before.
The ASX share is working on improving its profitability. As such, it was able to increase its EBITDA margin guidance for FY23 from 2% to 4%, up to 3% to 5%.
I like the areas that the business is growing in. For example, it's adding the following with its content and service: video, 3D, augmented reality and virtual reality, as well as design help for households.
Plus, the business is working on becoming a more effective option for trade and commercial customers. It's also looking to grow in the home improvement category (including painting, plumbing and flooring products) via its The Build website.
The Temple & Webster share price has fallen 53% since the beginning of the year, making it more attractive in my opinion.
