If you’re looking for ASX growth shares at a reasonable valuation, here are three shares that are currently unloved by the market but have the potential to rebound in 2021.
1. Treasury Wine Estates Ltd (ASX: TWE)
Treasury Wine Estates is one of the world’s largest wine companies, with notable brands including Penfolds, Wolf Blass, and Pepperjack.
Unfortunately, it’s been a troublesome 12 months for Treasury Wine. The share price has fallen from a high of $17.80 in January 2020 to $10.05.
TWE share price chart
The business has had multiple hurdles to overcome in the past year. Underperforming operations in the United States led to an initial 20% price fall in late January 2020.
Then the closure of restaurants and other key channels due to COVID-19 for higher-margin luxury wine impacted full-year results in August.
Subsequently, the planned demerger of Penfolds, which accounts for approximately 10% of volume but over 50% of earnings, was put on hold.
And then to add the cherry on top, Chinese authorities decided to impose tariffs of 169% on Treasury Wines’ products. Talk about a rough 2020.
With the Treasury Wine share price now hovering around $10, the market has fallen out of love.
Fortunately, it seems all the bad news is factored in.
If just one of the aforementioned problems abates, such as the removal of tariffs or a turnaround of US operations, the Treasury Wine share price will likely re-rate to the upside.
2. A2 Milk Company Ltd (ASX: A2M)
A perennial outperformer and long-term lovechild of many ASX investors, a2 Milk produces liquid milk and infant milk formula containing only the A2 protein.
Sadly, the outperformance has rapidly diminished, as the share price effectively halved from a one-year high of $20.05 to $10.70.
The sharp sell-down was in response to downgraded FY21 guidance, where management cited weaker than expected sales from its daigou and cross border e-commerce (CBEC) channels due to the global pause in travel as a result of COVID-19.
It’s difficult to foresee how the business can rectify the supply chain issues until international borders reopen.
However, with the roll-out of vaccines globally, international travel should hopefully return in 2021, providing a catalyst for a re-rating of the a2 Milk share price.
3. Appen Limited (ASX: APX)
Appen is the world’s largest provider of human-annotated data for machine learning and artificial intelligence. The company has built a formidable business providing the world’s largest companies (think Google and Microsoft) the data to power their search engines and voice assistants.
The Appen share price has fallen from a high $43.66 to $22.66 at the close of Friday trading, just shy of halving in the past six months.
The share price fall results from negatively revised earnings guidance. FY20 underlying EBITDA is expected to be in the range of $106 million to $109 million compared to $101 million in FY19. This is a far cry from Appen’s five-year underlying EBITDA compound annual growth rate (CAGR) of 64%.
Management stated “major clients are reprioritizing resources towards new product areas”, which has impacted the revenues.
However, this is believed to be a temporary setback, with the business expected to return to an industry growth rate estimated to be 28% per year.
Appen has an impressive track record of growing revenue. If the business can return even close to the 28% per year industry growth rate, the Appen share price will likely rebound.
