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Are Star Entertainment (ASX:SGR) shares dirt cheap?

Shares in Star Entertainment Group Ltd (ASX: SGR) are still over 20% down since allegations of suspected money laundering were made against the company recently.

For a detailed breakdown of what’s happened with Star over the past few weeks, check out my colleague, Lachlan Buur-Jensen’s article here.

Time to buy the dip?

In the stock market, investors and traders are often attracted to companies whose shares have fallen significantly in a short amount of time. Given that the market tends to overreact on both the upside and downside, this can often present opportunities to pick up some bargains and make some quick gains.

However, this method can be risky if you’re buying companies that aren’t growing, or worse, losing value over time. Time does not work in your favor under these conditions.

Prior to Covid, Star’s shares haven’t really lived up to the name of the company. The five-year share price chart paints a fairly accurate picture of the business’s performance.

Source: Rask Media SGR 5-year share price chart

Topline revenue has almost stalled in some years, gross margins have declined as well as return on equity – an important metric that measures profitability in relation to shareholder’s equity. The business also carries debt and its debt/equity ratios have increased over the past few years.

Star has not been a total capital destroyer however, as it’s paid a fully franked dividend of around 4% for the three years prior to Covid. Still, this is not huge growth.

What now?

My own preference would be to buy the dip for companies that are experiencing high levels of growth. In this situation, time is working with you rather than against you if you were to buy into companies that are losing value over time.

When the whole tech sector takes a hit, we often see some large losses from quality companies like Xero Limited (ASX: XRO) as an example. These are the sort of companies I’d be happy to buy as there’s often no change to the fundamentals of the business.

You can read a little bit more about Xero and Tyro Payments Ltd (ASX: TYR) here: 2 ASX growth shares I’d buy in a tech downturn.

$50,000 per year in passive income from shares? Yes, please!

With interest rates UP, now could be one of the best times to start earning passive income from a portfolio. Imagine earning 4%, 5% — or more — in dividend passive income from the best shares, LICs, or ETFs… it’s like magic.

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Chief Investment Officer Owen Rask has just released his brand new passive income report. Owen has outlined 10 of his favourite ETFs and shares to watch, his rules for passive income investing, why he would buy ETFs before LICs and more.

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(Psst. By creating a free Rask account, you’ll also get access to 15+ online courses, 1,000+ podcasts, invites to events, a weekly value investing newsletter and more!)

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Information warning: The information on this website is published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.

At the time of publishing, Patrick owns shares in Tyro Ltd.
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