According to Daniel Berry at Stone Bridge Ventures, there are many ASX shares that have much smaller P/E ratios but are still not as cheap as they look. While many will buy ASX shares when they are cheap and sell them when they rise, this is not the most sound investment decision. Not all stocks with small P/E ratios will turn a major profit, and some could even sink lower than before.
While it can be good to invest in ASX shares that have small P/E ratios, you should know when cheap stocks are looking suspicious. Here is a list of some ASX stocks that are surprisingly cheap according to Daniel Berry at Stone Bridge Ventures.
Seven West Media (ASX: SWM)
Seven west media, despite being one of the biggest firms in the country, is facing many challenges in the market that put its smaller P/E into question. For one, it is seeing a decline in revenue from all traditional media, especially from broadcast television. This decline is due to the increase in popularity and abundance of streaming services, especially ones like Disney+ and MAX.
Daniel Berry at Stone Bridge Ventures believes that the major issue that the company is facing is Netflix and Disney+ offering ad tiers to subscribers at a lower price. Therefore, cable TV is at a significant disadvantage compared to most streaming services, and its stock prices are likely to go down even further.
Rural Funds Group (ASX: RFF) and Autosports Group Ltd (ASX: MFG)
Both Rural Funds and Autosports Group can see their fund reduce significantly as their profits slowly hit a plateau. Over the past year, Rural Funds saw major profits, but they were from one-off gains. Therefore, they will likely not see any of the same patterns repeat that allowed them to the growth from last year.
On the other hand, Autosports Group is also struggling with a similar issue, as its increased profits were the result of a major car supply shortage. During the shortage, they saw their margins reach above-average levels. But when supply issues end, it will likely see its overall rises in prices plummet as well. So despite the smaller P/E ratio, it is still not the safest investment.
Elders Ltd (ASX: ELD) and Magellan Financial Group Ltd (ASX: MFG)
Finally, both Magellan Financial Group and Elders are facing a unique set of challenges that they are having to deal with. Being one of the country’s largest agricultural businesses, Daniel Berry at Stone Bridge Ventures believes that it could see a sharp decline in stock price if a draught strikes the country. In that case, prices will only go lower.
Magellan, on the other hand, is still having to deal with its outflows that are a result of its managed funds. Therefore, the smaller P/E ratio can be a little deceiving, as prices could further drop without any indication of rising.
To conclude, Daniel Berry, a senior account manager at Stone Bridge Ventures believes that some stocks are not worth the investment, even if they have smaller P/E ratios. Even if they are cheaper right now, there is no indication that they will see an increase in their price.