1 ASX stock down 70% I'm considering buying

I think investors need to hear about this potentially exciting business.

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The ASX stock Audinate Group Ltd (ASX: AD8) has plummeted close to 70% since mid-March 2024. Few businesses have fallen as much as that on the ASX in the last 12 months. Indeed, quite the opposite, with many making major gains instead.

Audinate may not be the most well-known business on the ASX, but it claims to be one of the leaders in the world at what it does. The company operates the Dante networking solution, which provides traditional analogue audio cables by transmitting synchronised audio signals across large distances to multiple locations at once, using just ethernet cables.

Audinate's service is used by clients in the professional live sound, commercial installation, broadcast, public address and recording industries.

Let's get into why the business has fallen so much.

Recent weakness

As the chart below shows, the last 12 months have been rough for the company.

Created with Highcharts 11.4.3Audinate Group PriceZoom1M3M6MYTD1Y5Y10YALL1 Mar 202423 Jan 2025Zoom ▾Mar '24Apr '24May '24Jun '24Jul '24Aug '24Sep '24Oct '24Nov '24Dec '24Jan '25Apr '24Apr '24Jul '24Jul '24Oct '24Oct '24Jan '25Jan '25www.fool.com.au

The company's latest update, covering the first three months of FY25, outlined a number of its problems. Those issues included shorter order lead times, increased inventory across the industry, slower clearance of raw material inventories by its manufacturing customers, and softer than expected demand from end-users.

In October, Audinate said these headwinds were expected to continue into the second quarter of FY25. The company had previously advised that it expected to generate a "slightly lower" gross profit in FY25 than FY24 but then said in October that it was unlikely to achieve that. In the first quarter of FY25, the business generated US$7.2 million of gross profit.

The ASX stock is also expecting cost growth in the range of 7% to 9% in FY25 as it aims to balance its cost structure with investments in new product development to "drive sustained future growth".

Why I think the ASX stock is a turnaround opportunity

When a business falls as much as Audinate has, it's useful to question whether the outlook has permanently worsened.

Audinate says that FY25 is a transitional year as its manufacturing customers work through their inventory, and it's waiting for a recovery in end-user demand to drive future orders.

Management expects this transition to last only a year, returning to growth in FY26 with more typical customer order patterns. If a recovery can occur within the next 15 months, I think the ASX stock could get back on track, both with its financials and with investor support.

The company already has more than 6 million Dante devices in the field, with more than 1 million added annually. According to Audinate, its growth will be driven by the increasing adoption of Dante technology across a wide range of audio and video products.

As the installed base expands, the company has the opportunity to build a platform software business, enabling AV (audio-visual) professionals to manage and monitor AV installations.

The ASX stock pointed out that demand for Dante "continues to grow" as manufacturers develop new Dante products, and AV system designers and installers are increasingly choosing Dante. Design wins in the first quarter of FY25 were up 22% year over year, indicating future revenue growth.

With those sorts of positives building in the background, I think the Audinate share price could be a long-term opportunity, particularly if it can get back to growing its various profit margins.

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 Audinate Group. The Motley Fool Australia has positions in and has recommended Audinate 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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