Here are 5 rebound stocks and 5 that could be about to be the next success stories

Nick Sundich Nick Sundich, March 21, 2024

One of the best ways to make money from stocks is from so-called rebound stocks. By this we mean stocks that have fallen, but recover lost ground and sometimes end up higher than they were before.

The risk with this strategy is that companies actually aren’t turning around, and any movement is just a ‘dead cat bounce’. Yet, stocks can turn around with the right management and any necessary pivots needed to be made. To illustrate our point we are outlining 5 ASX stocks that have rebounded, as well as 5 we think could rebound in the last 12 months.

 

5 successful rebound stocks

 

Bravura (ASX:BVS)

Bravura is a provider of back-office software to financial institutions, helping them minimise risk, operate more efficiently and provide enhanced customers service. Bravura’s current stint on the ASX is its second, having first listed in 2006 before de-listing in 2013 and re-listed in 2016 with private equity firm Ironbridge buying and selling. The company fell from $4.92 to 39c per share between mid-2019 and March 2023. The pandemic made business development more difficult and after years of expansion, the company held a review that essentially found it had developed its products in every direction without much focus. It had to raise capital at a 50% discount.

A year later, the company is at $1.43 per share, a gain of over 350%. The company delivered a turnaround, hiring a new CEO and refreshing the board. After a 6% revenue decline in FY23, told investors to expect the same result in FY24 and a positive EBITDA result of $10-15m. Its first half results saw a 7% revenue jump and EBITDA of $7.9m from a $3.6m loss a year earlier. It upgraded its EBITDA guidance to $18-22m.

 

Step One (ASX:STP)

Step One listed on the ASX in November 2021, one of the last of several dozen IPOs of that year. It is an underwear company, selling underwear made of bamboo that prevents sweat and riding up. Within two months of it listing, it identified an overclaim of GST credits and all the post-listing momentum was lost. Investors were aware of the company’s plans for expansion into womenswear and overseas, but they feared the prospects of a recession. Why would you pay $29 for a pair of underwear when you can pay $15 for a pair of 5?

Fast forward to now and the company saw $45m in revenue in 1HY24 and a $7m post-tax profit. It has a gross margin of 81%, an average order value of $94.47 and over 1.5m global customers.

 

Lumos Diagnostics (ASX:LDX)

Talk about a rollercoaster journey. In July 2022, the FDA rejected the company’s application for regulatory approval for its FebriDx blood test. FebriDx can indicate if a person has a general bacterial or viral acute respiratory infection within 10 minutes.

This was not a case where the FDA needed more information, it gave an explicit no saying it did not meet the requirements – namely showing substantial equivalence to the predicate device. The FDA was concerned about the risk of false negatives, thereby missing opportunities to treat patients or worse, cause further infections by enabling further spreading.  

Lumos did not give up, submitting a new application in February and getting a yes in early July. Now yes, the company is still well of its $1.25 IPO price, but is well ahead of where it was during the 12 months it spent in purgatory.

 

Megaport (ASX:MP1)

Megaport is a provider of middleman software that makes it easier and more secure for businesses to connect to critical Cloud-based systems. It listed in late 2015 at $1.25 that gave it a market capitalisation of just under $90m. Today, it has a market cap of $2.4bn and is over $15 per share. 

The stock shed 80% of its value between November 2021 and March 2023 as investors fled non-profitable tech companies. The company still isn’t profitable, but it has made substantial improvement towards that goal. In FY23, it made $153.1m in revenue (up 40%, $20.2m EBITDA and 11% growth in services to 30,516. In 1HY23, it made $95.1m in revenue (up 35%), $30.1m EBITDA (up 785) and a net profit of $4.4m (from a $13m loss 12 months earlier).

 

CSL (ASX:CSL)

CSL faced 3 major concerns in 2022 and 2023. Namely:

    • The rise in the use in GLP-1 drugs like Ozempic threatening its own Ferinject,
    • Falling margins across the board, particularly in its blood plasma business fees, and;
    • Continued investor skepticism about the Vifor acquisition, the price it paid relative to the return expected.   

After CSL’s ASX shares bottomed out in mid-October 2023, it improved in conjunction with market sentiment as Fed rate cuts seemed closer. In 1HY24, it made US$8bn in revenue, up 11%, as well as a $1.9bn profit, up 17%. Seems investors realised they were wrong about falling margins.

 

5 stocks that could become next years’ list of rebound stocks

 

HiPages (ASX:HPG)

HiPages is the largest online market place of trade services in Australia. It can also benefit from the network effect – namely, more jobs means more tradies on the platform which means more jobs…and so on. The problem has been that the company is not profitable and has struggled with the Tec Wreck. But look at the example of Megaport as what can happen when a company moves towards it.

In 1HY24, its revenue grew 15% to $37.4m and 94% of this was recurring. The average spend on the platform was $2,075 (up 11%) and it made a $3.7m profit, up from a $1.5m loss.

 

Dominos (ASX:DMP)

Dominos is the master franchisor of Dominos in roughly a dozen countries including Australia. But the company has been through difficult times. It benefited during the pandemic as locked down consumers ordered pizza at home. The company was in perfect position to capitalise given its store network and in-house delivery system. But as people remerged form their cocoons, inflation skyrocketed and Dominos saw sales flatline as people pivoted to cheaper options. High inflation on ingredients and unfavourable forex movements compounded the hit to the company’s bottom line. To say it has been an ugly couple of years for the share price is an understatement.

The company’s sales have been in recovery mode for some months, although margins have not been. We think the company’s bottom line recovery is gradually getting underway. Even though its EBIT in 1HY24 was 5.3% lower than 1HY23, it was 23% higher than 1HY22. And its sales growth was the strongest in 6 years.

 

Chalice Mining (ASX:CHN)

Chalice has its hands on the largest nickel sulphide discovery anywhere in the world in 2 decades and the largest PGE (Platinum Group elements) discovery in Australian history.

As of July 2023, it has a resource of 560Mt @ 0.54% nickel or ~1.7g/t palladium equivalent. 55% of this is Measured and Indicated with the balance Inferred. This equates to 16Moz of 3E (Palladium, Platinum and Gold combined), 860kt nickel, 520kt copper and 83kt of cobalt. This is equivalent to 3Mt of nickel equivalent or 30Moz of palladium equivalent.

So, why the crash from all time highs in 2021? The fact that it’ll take a while to bring into production (at least 5 years) and cost $1.6-2.3bn. It doesn’t even have a Preliminary Feasibility Study (PFS) out right now. The fall in battery metal prices has not helped matters either.

Why could this stock rebound? We wouldn’t be surprised to see it be a takeover target, given the chance to buy such a quality asset at a bargain price. The company trades at just over $400m right now. Beyond that, we think battery metal prices will improve and this will help sentiment.

 

DGL (ASX:DGL)

In the last two years, this company’s shares have fallen over 80%. It is an end to end chemicals business. Soon after DGL’s ASX share price peaked in late April 2022, CEO Simon Henry’s negative comments on a New Zealand public figure went viral on social media and triggered scrutiny on DGL. Some commentators argued this company might just be a classic example of a high P/E-multiple listed company roll-up of low P/E-multiple private companies where the growth only continues so long as the rolling wheel keeps going.

The company has also suffered margin compression given inflation. Despite a 26% gain in revenues during FY23, its profit fell 31%. In 1HY24, is revenues were flat and its profit fell 43%. Since then, however, the company has informed investors that activity has rebounded in CY24 as demand for crop production products recovered. It has said that the outlook is positive for a stronger revenue and profit performance in the second half compared to the first. 

 

Liontown Resources (ASX:LTR)

Liontown owns the Kathleen Valley Lithium Project in Western Australia. It has a current Mineral Resource Estimate of 156Mt at 1.4% lithium. Over 80% of this is Measured or Indicated. The project, which Liontown made the Final Investment Decision on in 2022, is one of the most significant new, long-life lithium projects being constructed anywhere in the world.

Liontown has suffered from sentiment towards the lithium sector given plunging prices, but also because a A$6.6bn takeover bid fell through. Just like with Chalice, we think it the company could rerate because of lithium prices improving and potential for M&A activity. Liontown has the further catalyst of expecting to enter production during the current calendar year.

 

What are the Best ASX stocks to invest in right now?

Check our buy/sell tips

 

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