'Huge pipeline': Why this beaten-up ASX 200 share could have major growth potential

A fund manager has picked out a beaten-up opportunity for investors.

| More on:
a farmer kneels on one leg and closely examines soil from his farm against a blue sky backdrop.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

One fund manager has singled out the S&P/ASX 200 Index (ASX: XJO) share Nufarm Ltd (ASX: NUF) as an investing opportunity.

L1 Capital has given a vote of confidence in the ASX agriculture share, particularly at its current share price.

For investors who aren't familiar with the company, Nufarm describes itself as a global crop protection and seed technology specialist. Nufarm was reportedly the first operation to develop and commercialise planted-based Omega-3 and has also developed and commercialised advanced bioenergy feedstock technology.

As we can see on the chart below, the Nufarm share price is down by around 30% since its 52-week high in December 2022.

Why does L1 like the ASX 200 share?

The fund manager explained Nufarm's recent trading was impacted by weaker US rainfall and "transitory farmer de-stocking impacts".

L1 said the "world's leading Omega-3 seed technology" has the potential to deliver a "step change" in Nufarm's earnings in FY25 or FY26. It pointed out the long-term growth aspiration of the company is to grow earnings before interest, tax, depreciation and amortisation (EBITDA) from $59 million in FY22 to $146 million in FY26.

The L1 investment team says there is a huge pipeline of crop protection product launches.

It also likes the valuation the Nufarm share price is trading at, which I'll get to in a moment.

FY23 outlook

Just over a month ago, the ASX 200 share updated its outlook for the 2023 financial year, which was for the 12 months ending 30 September 2023.

In FY23, it expects to report underlying EBITDA in the range of between $430 million to $440 million. Its leverage ratio is expected to be between 2.1 to 2.4 times. Inventory has reduced during the period, though this was "more than offset by an increase in receivables due to the phasing of sales".

Nufarm CEO Greg Hunt said:

We expect to deliver another good result for FY23, following on from the record earnings result delivered in FY22. Despite a very challenging operating environment, we have seen the benefits of revenue diversification across the group, with some softness in crop protection offset by a very strong performance in seed technologies.

We remain on track for our FY26 revenue aspirations.

Nufarm share price valuation

According to L1, the ASX 200 share is trading at roughly 12 times FY24's estimated earnings and on average is delivering earnings per share (EPS) growth of 15% per annum.

In other words, the EPS growth rate is higher than the company's price/earnings (P/E) ratio. When the price-to-earnings-growth (PEG) ratio is less than one, that's seen as an attractive opportunity.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the 'five best ASX stocks' for investors to buy right now. We believe these stocks are trading at attractive prices and Scott thinks they could be great buys right now...

See The 5 Stocks *Returns as of 30 April 2025

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

The silhouettes of ten people holding hands with their arms raised against the sky, as the sun rises or sets in the background.
Share Gainers

Here are the top 10 ASX 200 shares today

ASX shares finished the trading week on a high this Friday.

Read more »

A businessman stacks building blocks.
Technology Shares

6% gain! What's up with Block shares today?

Block shares are up more than 34% since 2 May.

Read more »

Broker looking at the share price.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A young man punches the air in delight as he reacts to great news on his mobile phone.
Share Gainers

Why ARB, Block, Mayne Pharma, and Paladin Energy shares are charging higher today

These shares are having a strong finish to the week. But why?

Read more »

A woman puts her hands up as she smashes and breaks through a glass ceiling.
Share Gainers

How these 5 ASX 200 stocks are smashing the benchmark this week

These fives ASX 200 stocks have made some very happy shareholders this week. Here’s how.

Read more »

Bored man sitting at his desk with his laptop.
Share Fallers

Why Catalyst Metals, Duratec, Nufarm, and Rio Tinto shares are dropping today

These shares are ending the week in the red. But why?

Read more »

A smiling woman at a hardware shop selects paint colours from a wall display.
Broker Notes

After its strategy day, what does Macquarie think Wesfarmers shares are worth?

Let's see what the broker is saying about this blue chip.

Read more »

Buy, hold, and sell ratings written on signs on a wooden pole.
Technology Shares

After surging 13% yesterday, are TechnologyOne shares a buy, hold or sell according to Macquarie?

Valuations matter when investing, and Macquarie feels no different.

Read more »