Here are 5 ASX stocks with huge potential…if only they could get their act together

There are plenty of ASX stocks with huge potential, but very few end up realising it. For some, it is a case of bad luck, but others: let’s just say you can point the finger at the management.

For many of these, these issues were able to be hidden for a while because their stock’s industry was a hot thematic, or there were short-term wins. And when the chickens came home to roost, they were exposed. Here’s a list of 5 such companies.

 

5 ASX stocks with huge potential…if only they got their act together

 

Dominos Pizza Enterprises (ASX:DMP) 

This is the master franchisor for the Dominos brand in roughly a dozen countries. The list includes: Australia, New Zealand, France, Germany, the Netherlands, Belgium, Luxembourg, Taiwan, Japan, Malaysia, Singapore and Cambodia. It has been a time of shrinking margins for Dominos, with the prices of its inputs all increasing faster than it can increase prices. OK, increase prices without alienating customers.

The thematic around this company is that within a decade, it hopes to have 7,100 stores – double what it is now. The bulk of this will come from Asia – particularly Japan and Taiwan.

 

 

But the company has been struggling with intense competition, and weaker currencies (which intensify the high input costs). The company has rolled out too fast and too broad geographically, yet still wants to expand. We think if Dominos exited Japan and just focused on its European and Australian markets, as well as cut back its growth ambitions, investors would be more believing in the company’s story.

 

Airtasker (ASX:ART)

Remember early 2021 when the company listed and its shares more than doubled – reaching $1.50 in just a few days? Yes, those were the days. Airtasker was one of the best privately-held tech stories and everyone wanted to get their hands on shares, just as it was when Guzman y Gomez listed recently. Well, three years on and Airtasker shares are less than half of what they were when the company listed. Investors have turned away from companies are not profitable.

As a company that is the best place to go where you need ‘tasks done’, it could be a great company to invest in, if only it was properly profitable. The company has boasted that it is EBITDA profitable, and made a positive free cash flow of $0.1m – a figure excluding invested surplus cash in term deposits. But only when the bottom line is in black will investors pay attention.

 

Cettire (ASX:CTT) 

Cettire has plenty of problems, some of which are out of the company’s control, but other are within its control and the company has done itself no favours. The high-end fashion-focused ecommerce outlet has had a horrible year.

Investors have lost faith in the company ever since the AFR published an investigation that revealed duties charged by Cettire on goods may not have been paid to the federal government. Investors sold off the stock, unsure whether this was a legal part of the business model, or something that could get it into trouble. Three months later, it warned investors it had ‘observed more challenging market conditions’, and there was a further sell-off. 

We won’t pretend to have all the solutions to the company’s problems. But one thing that might help is CEO Dean Mintz buying shares. It is always a sign of confidence when company management buys shares, taking it as a sign of confidence. This would be particularly so with Cettire, given how many shares he has sold since the company listed. No ‘6 month escrow extension’ would do the trick anywhere near as well as this action. 

 

Kogan (ASX:KGN)

Kogan is another online ecommerce outlet. It is an all-rounder with an online store selling its own branded goods as well as those from third-parties. The company also offers mobile phone plans, insurance, internet and financial services.

Kogan First is the company’s opt-in premium membership service. It is similar to Amazon Prime, offering exclusive deals and perks, such as free shipping and exclusive access to Kogan First Day, one annual day where members get exclusive deals. The company saw a spectacular rise, and decline during the pandemic and its aftermath. It bulked up on inventory substantially and had to discount in order to clear it.

In our view, the company needs to truly follow Amazon in not just being an online store but being a membership service. It should look to have other inclusions in its Kogan First, whether it is some streaming service (with exclusive content whether movies or sporting events) or something else. Imagine if Kogan had exclusive rights to a sports event, how many would join just for that? Kogan First has a reasonable penetration, but it could easily be higher. Consider that 3 in 4 American households have Amazon Prime (180m households all up) – that’s more than those who have a gun, go to church or put up a Christmas tree. Just imagine if that (3 in 4 households) was Kogan First’s penetration in Australia. Probably unrealistic given Amazon Prime exists in Australia, but we think it will need more than discounted shipping to be competitive.

 

Transurban (ASX:TCL)

What’s better than having carved out a monopoly in a particular market? Having a statutory monopoly for several decades. This is the situation Transurban (ASX:TCL) finds itself in. During the pandemic, it struggled because less people were on the roads, although this issue is over. But it has not gained substantially, and we think it is because the majority of its roads are in Sydney (in fact it owns all but 2 of Sydney’s toll roads). So what? It looks like grumblings about high toll roads are being acted upon.

There is a new weekly cap on tolls, which isn’t too much higher than the cap on public transport. But at $60 a week, that is little more than the cost of 1 trip between the CBD and Campbelltown ($25.98 each way). There has been a review issued by the government, the interim recommendations coming through in January and the final recommendations this week. The reviews warned tolls were too high and recommended the government take control of tolls and set prices for itself. The government has not committed to any changes yet, but Transurban committed to work with the review and the government.

No business should have as substantial an exposure to one market as Transurban does, and we would like to see the company diversify into new markets. Yes this is easier said than done, given other toll roads elsewhere have monopolies. But this is something the company should look into. This being said, we can’t blame the company for fighting this after paying a total of $20bn just to get 100% of WestConnex. Nor the directors, for they have a statutory obligation to act in the best interests of the company, and doing anything to deliberatly destruct value falls well short of that.

 

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