The ASX share market is full of potential opportunities that could be market beaters because of how cheap these ASX value stocks look, in my opinion.
Not every good business is cheap. There are some great businesses that usually trade on a higher price/earnings (P/E) ratio, and they perform well for shareholders because the earnings growth continues to be strong over the long term.
But if we choose the right ASX value stocks, we can also achieve solid returns from businesses with lower P/E ratios.
Below, I'm going to discuss three businesses that trade on relatively low valuations and are expected to see profit growth in the coming years. That earnings growth could send the share prices higher.
Adairs Ltd (ASX: ADH)
As shown on the chart, the Adairs share price is down more than 20% from March 2024 and around 60% from its high in 2021.
This business has three furniture and homewares businesses: Adairs, Mocka, and Focus on Furniture. Considering the difficult financial situation some households are in, it's understandable why investors are uncertain about this area of the market.
However, I think it's unlikely that the bad conditions will last forever.
Indeed, some retailers, such as Universal Store Holdings Ltd (ASX: UNI) and Michael Hill International Ltd (ASX: MHJ), have recently announced promising updates detailing improving sales numbers in the last few months.
Estimates on Commsec suggest Adairs' earnings per share (EPS) could rise 32% between FY24 and FY26, putting the ASX value stock at under 8x FY26's estimated earnings.
Adairs can improve earnings even if retail conditions don't significantly improve by growing the number of stores, upsizing some Adairs stores, improving efficiencies, and getting its new national distribution center up to speed.
Kelsian Group Ltd (ASX: KLS)
Kelsian is a large multimodal transport provider and tourism operator, with bus operations in Australia, Singapore, the USA, and London. At the end of its FY24 first-half result, it had 5,500 buses, 115 vessels, and 24 light rail vehicles.
As the chart below shows, it's down 26% in the last 12 months and has halved since April 2021.
Kelsian can grow earnings in the coming years with new and expanded routes in the locations where it operates. When it released its FY24 half-year result, it said the business is:
…well-placed to continue to deliver growth underpinned by economies of scale, efficiencies and global procurement opportunities.
Those optimistic comments come after the business announced 29.4% growth in reported underlying earnings before interest and tax (EBIT) to $58.1 million.
Commsec estimates suggest the EPS could grow 38% between FY24 and FY26. These numbers could put the ASX value stock at under 12x FY26's estimated earnings.
Metcash Ltd (ASX: MTS)
The Metcash share price is down 10% since March 2024 and around 25% from April 2022, as shown on the chart below.
This business is a national supplier to IGA supermarkets around Australia and national liquor brands such as Cellarbrations, The Bottle-O, IGA Liquor, and Porters Liquor.
The company is the second-largest hardware business in the country, with its brands of Mitre 10, Home Timber & Hardware and Total Tools. It says it also supports independent operators under the small format convenience banners Thrifty-Link Hardware and True Value Hardware.
The company's hardware segment is suffering from weak construction and renovation conditions amid high interest rates. However, once rates eventually fall, there could be a compelling recovery in the future.
Estimates on Commsec suggest Metcash's EPS could increase to 30 cents and that the ASX value stock is valued at 12x FY26's forecast profit.
