A multi-millionaire and I are buying the dip on this undervalued ASX stock

A 16% discount on a quality business… I don't mind if I do.

| More on:
A man clasps his hands together while he looks upwards and sideways pondering how the Betashares Nasdaq 100 ETF performed in the 2022 financial year

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

A wealthy businessperson and I have something in common… unfortunately, it's not how much money we have. Instead, it's our eagerness to buy a particular ASX-listed stock after it plunged 16% in a single day last week.

See, reporting season can be a wildly volatile time for shares. Emotions run high as investors get their first peep into the business in months. If anything fails to meet preconceived estimates, the sentiment can quickly swing into panic.

For anyone who's been in the game long enough, you'll know that sometimes this behaviour can be rather irrational. It makes hardly any sense, to me at least, for a company's share price to be set ablaze when it misses an arbitrary target if most aspects of the business continue to head in the right direction.

However, I welcome absurdity, and it looks like a person worth $123 million does, too. It gives us the chance to buy quality companies at lower prices. Which is exactly what I believe the two of us were able to do on Monday.

Expectations and disappointment

On Friday, the Jumbo Interactive Ltd (ASX: JIN) share price tumbled 16.2% as the company unveiled its FY24 full-year results.

Oh, it was a downright shocker of a result… I mean, revenue was only up 34% from the prior year. Can you believe it? And don't get me started on the underlying net profit after tax (NPAT) of $46.4 million… up a pitiful 32%. But the dividends, oh, the dividends — 27% more than what Jumbo paid per share in FY23.

I hope you can detect the satire in my writing there. In all seriousness, I thought it was a phenomenal result — one I never would have guessed would erase nearly a sixth of the company's market capitalisation from this ASX stock.

Some of the concern is rumoured to be Jumbo's forecast FY25 underlying EBITDA margin range of 46% and 48%. Specifically, it suggests a decline from FY24's 48.1% EBITDA margin. Layer this with the expectation of a 'return to the historical number of large jackpots' and 'modest' growth, and we have a recipe for selling.

Scooping up this sold-off ASX stock

Ultimately, I think some softening in FY25 is not the end of the world for Jumbo Interactive.

If you've read other company reports and business news headlines, you'd know many are discussing the slowdown in spending. This situation is being felt broadly across the Australian economy as interest rates bite down on discretionary spending, as intended by the Reserve Bank of Australia.

In my opinion, nothing has fundamentally changed in the investment case for Jumbo Interactive. That's why I grabbed another parcel of shares in the company on Monday.

I can't speak for Jumbo Interactive founder and CEO Mike Veverka, but he clearly had reasons to invest on Monday and Tuesday as well. According to a notice, the wealthy Jumbo shareholder purchased another 10,400 shares worth nearly $100,000 earlier this week.

Created with Highcharts 11.4.3Jumbo Interactive PriceZoom1M3M6MYTD1Y5Y10YALL29 Feb 202430 Aug 2024Zoom ▾Mar '24Apr '24May '24Jun '24Jul '24Aug '24Mar '24Mar '24May '24May '24Jul '24Jul '24www.fool.com.au

As shown above, the ASX stock is down 24% over the past six months. Shares currently trade at a price-to-earnings (P/E) ratio of 20 times earnings.

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

More on Opinions

Happy miner giving ok sign in front of a mine.
Opinions

Which ASX 200 stock offers 'material upside' amid continuing uncertainty over US tariffs?

Blackwattle Investment has identified one ASX 200 large-cap stock that is thriving on the uncertainty.

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
Financial Shares

2 rising ASX financial shares with 'meaningful upside' still left: fundie

Financials outperformed every other sector in FY25, but there are still buying opportunities left, say these experts.

Read more »

A businessman hugs his computer and smiles.
Opinions

If I could only own one ASX 200 share for the rest of my life, it'd be this one

This is one stock I expect to own forever.

Read more »

Man ponders a receipt as he looks at his laptop.
Technology Shares

Brokers rerate 3 leading ASX 200 tech stocks

Experts reveal their ratings on the ASX 200 tech sector's three biggest companies.

Read more »

Person holding a blue chip.
Opinions

Buy alert! 2 ASX 200 blue-chip shares worth a look now: expert

Dylan Evans from Catapult Wealth has identified two blue-chip shares that he thinks are good buys today.

Read more »

Two happy woman on a couch looking at a tablet.
Opinions

Why I'm excited to see the results of these ASX 200 shares

These stocks could reveal very interesting insights.

Read more »

Young male investor smiling looking at laptop as the share price of ASX ETF CRYP goes higher today
Opinions

Why I just bought this 5.2%-yielding ASX dividend stock and plan to buy even more

This business is one of my favourites for dividends and total returns.

Read more »

A young female investor with brown curly hair and wearing a yellow top and glasses sits at her desk using her calculator to work out how much her ASX dividend shares will pay this year
Opinions

Why I'm still investing in ASX shares during tariff uncertainty

There are a few reasons why I plan to continue investing even during uncertainty.

Read more »