'Ahead of expectations': Why this ASX stock could make you smile in a few years

Sometimes the stock price doesn't reflect the business performance. This is when long-term investors can pounce.

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Some investors experience cognitive dissonance when a business that's seemingly doing well sees its share price plunge.

But it happens all the time.

The cold hard mathematical fact is that the share price has zero correlation to the business. 

It is merely formed by supply and demand for the ASX stock — how much someone is willing to sell it for, which is acceptable to someone else willing to buy it. 

So at any given time there are bargains on the bourse that could shoot up when the market realises it's underappreciating the underlying company.

Here's one current example from the team at the Elvest Fund:

Great result, but valuation down

Johns Lyng Group Ltd (ASX: JLG) shares have had a topsy-turvy year.

From peak to trough and back again, there have been swings of 20% to 30% making its investors nauseous.

It's now down 20% from 12 months ago.

But Elvest analysts, in a memo to clients, explained why they're holding on for dear life despite another dip in November.

"Johns Lyng [shares] declined despite reiterating FY24 revenue and EBITDA guidance of $1.18 billion and $128 million, representing underlying earnings growth of approximately 20% versus FY23."

The annual general meeting provided much encouragement for the coming period.

"AGM commentary highlighted the positive outlook for Johns Lyng Group's recently established USA and Essential Home Services divisions," read the memo.

"Integration of Reconstruction Experts — US, acquired Jan 2022 — is ahead of expectations, accelerating execution of Johns Lyng Group's equity partnership expansion strategy in the much larger US market."

The Elvest team feels like the Essential Home Services unit, especially, has a lot of potential.

"Johns Lyng Group has a new business line that provides significant cross sell opportunities into its Strata Services division, which is the second largest in Australia with over 95,000 lots under management."

The Elvest team is far from alone in its bullishness for the insurance repair services provider.

According to CMC Invest, eight out of 11 analysts currently rate Johns Lyng as a buy.

Motley Fool contributor Tony Yoo has positions in Johns Lyng Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Johns Lyng Group. The Motley Fool Australia has recommended Johns Lyng Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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