1 ASX growth stock down 65% to buy right now

I like this beaten-up ASX growth stock a lot.

| More on:
A man in a business suit wearing boxing gloves slumps in the corner of a boxing ring representing the beaten-up Zip share price in recent times

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

ASX growth stocks that have fallen heavily in value can be attractive opportunities, in my opinion.

The more a share price falls, the bigger potential there is to make returns from a possible recovery. For example, if a company's share price falls 50% from $20 to $10, simply returning to $20 again would be a return of 100%.

Of course, we need to keep in mind that a share price isn't going to go back up just because it has fallen. A bear market can be a good time to find opportunities that have been sold in a widespread panic because the long-term outlook for that business may still be very positive.

The ASX tech share Frontier Digital Ventures Ltd (ASX: FDV) is down 65% from its peak in November 2021. I think it has very appealing prospects as an investment for a few different reasons.

Created with Highcharts 11.4.3Frontier Digital Ventures PriceZoom1M3M6MYTD1Y5Y10YALL5 Apr 20215 Apr 2024Zoom ▾May '21Sep '21Jan '22May '22Sep '22Jan '23May '23Sep '23Jan '24202220222023202320242024www.fool.com.au

Digital adoption tailwinds

Frontier Digital Ventures invests in leading online classifieds marketplaces in emerging regions, such as South America, the Middle East and Asia.

The ASX growth stock says that online classifieds marketplaces (like property, cars and general marketplaces) have "significant leverage to population and economic factors, with emerging markets amplifying the opportunity".

The total population of the markets in which Frontier Digital's investments operate is 882 million, which is 34 times the population of Australia. The markets have a growing middle-class and urban population.

The internet 'penetration' within the company's regions rose to 68% in 2023, up from 62% in 2022. This statistic may never reach 100%, but I think there's plenty more potential growth as more people start using the internet for more services.

Operating leverage

The ASX growth stocks' investments have already built their platforms. Additional users, new subscriptions or more volume can help ramp up profit margins because the business is spreading largely fixed costs across more customers.

One of the strongest benefits of technology businesses is how cheap it is to create an additional piece of software for another customer – tech companies can typically have an attractively high gross profit margin.

A company like REA Group Limited (ASX: REA), for example, has shown the underlying potential of an online business to generate stronger margins over the long term as it scales.

Increasingly profitable

I think it's an important milestone when a technology company can reach profitability after a long period of investing.

Frontier Digital Ventures recently reported a number of positives in its 2023 full-year result.

The ASX growth stock's 2023 statutory revenue increased by 15% to A$67.9 million, statutory earnings before interest, tax, depreciation and amortisation (EBITDA) grew $8.3 million year over year to $3.7 million, and the 2023 second half net profit after tax (NPAT) was A$1.3 million compared to a net loss of $9.9 million in the first half of 2023.

With strong tailwinds (like digitalisation) in the regions it invests in, I think this ASX growth stock has an appealing, profitable future. The more profit it can make, the easier it will be for investors to value the business and recognise the full potential of the company.

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 positions in and has recommended Frontier Digital Ventures and REA Group. The Motley Fool Australia has recommended Frontier Digital Ventures and REA Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Opinions

A young woman sits with her hand to her chin staring off to the side thinking about her investments.
Opinions

Could Soul Patts shares hit $50 in 2025?

This company jumped more than 16% yesterday.

Read more »

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
Opinions

3 great lessons I learned being an owner of Brickworks shares

I’m going to take these lessons with me.

Read more »

A bricklayer peers over the top of a brick wall he is laying with a level measuring tool on top and looks critically at the work he is carrying out.
Opinions

The pros and cons of the Soul Patts and Brickworks merger

This is a big deal. What are the positives and negatives of the merger?

Read more »

Piggy bank at the end of a winding road.
Opinions

My top 3 picks in the ASX 20 in June

I think these stocks stand out from the rest of the ASX 20 pack.

Read more »

A woman is very excited about something she's just seen on her computer, clenching her fists and smiling broadly.
Opinions

Potential buys: 2 compelling ASX shares I like

I think both of these investments are appealing.

Read more »

An ASX 200 market analyst holds his hand to his chin and looks closely at his computer screens watching share price movements
Opinions

Forget term deposits! I'd buy these two ASX 200 stocks instead

I think ASX stocks could make a much better investment than term deposits.

Read more »

share buyers, investors, happy investors
ETFs

How I would build a $100,000 portfolio with ASX ETFs today

You don't need more than three ETFs to build a diversified portfolio...

Read more »

iPhone with the logo and the word Google spelt multiple times in the background.
Opinions

I've been buying these 2 US stocks in 2025. Here's why

Sometimes the US markets are a better place to go shopping for stocks.

Read more »