ASX shares expected to trade below their intrinsic value in June 2024

With the Australian market posting modest gains, with the ASX200 closing this week up 0.1%, investors’ focus may shift to sectors that have underperformed and outperformed, such as materials and IT. In such a mixed economic environment, identifying potentially undervalued stocks becomes crucial, especially when considering long-term growth prospects in volatile markets.

The 10 most undervalued stocks in Australia based on cash flows

Click here to see the full list of 47 stocks from our Undervalued ASX Stocks Based on Cash Flows screener.

Let’s discover some pearls from our specialized screener

Overview: Mineral Resources Limited is an Australian, Asian and international mining services company with a market capitalisation of approximately A$10.52 billion.

Operations: The company generates revenues from lithium (AUD 1.60 billion), iron ore (AUD 2.50 billion) and mining services (AUD 2.82 billion).

Estimated discount to fair value: 19%

Mineral Resources Limited currently trades at A$53.92, 19% below our calculated fair value of A$66.53. This discrepancy suggests the stock may be undervalued based on discounted cash flows. The company’s earnings are expected to grow 27.42% annually, beating the Australian market forecast of 13.8%. Despite this growth potential and a forecast high return on equity of 25.8%, there are concerns as profit margins have fallen to 7.9% from 16.3% last year and interest payments are not adequately covered by earnings.

Overview: Strike Energy Limited is an Australian company engaged in the exploration and development of oil and gas reserves and has a market capitalization of approximately A$801.02 million.

Operations: The company focuses primarily on the exploration and development of oil and gas deposits in Australia.

Estimated discount to fair value: 29.9%

Strike Energy appears to be undervalued by over 20% at a current price of A$0.28 based on discounted cash flow analysis, suggesting potential for investors looking for value based on financial metrics. The company’s revenues and earnings are expected to grow by 37.8% and 36.69% per year, respectively, comfortably outperforming the Australian market averages of 5.4% and 13.8% respectively. However, recent significant insider selling and shareholder dilution over the past year may warrant investor caution.

Overview: Viva Energy Group Limited is an energy company operating in Australia, Singapore and Papua New Guinea with a market capitalisation of approximately A$5.00 billion.

Operations: The company generates revenue in three main segments: Comfort and Mobility with AUD 10.10 billion, Commercial and Industrial with AUD 16.64 billion, and Energy and Infrastructure with AUD 7.32 billion.

Estimated discount to fair value: 17.1%

Viva Energy Group is undervalued by 17.1% at A$3.15, with fair value estimated at A$3.8 based on discounted cash flow analysis. Despite recent index changes and insufficient coverage by earnings or cash flow, the dividend yields 4.51%. Outperforming is expected with earnings growth forecast at 29.76% annually, in contrast to slower revenue growth forecasts of 3.2% per year versus the market’s 5.4%.

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This Simply Wall St article is of a general nature. We provide commentary based solely on historical data and analyst forecasts, using an unbiased methodology. Our articles are not intended as financial advice. They do not constitute a recommendation to buy or sell stocks, and do not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.

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