Exploring Undervalued Small Caps With Insider Action In May 2024

In light of the recent budget announcement and subsequent market reactions, the Australian financial landscape is showing promising signs for specific sectors. With the ASX200 experiencing a rise and government incentives boosting exploration and mining companies, it’s an opportune moment to look at potentially undervalued small-cap stocks that could benefit from these conditions. A good stock in this context would be one that not only aligns with these burgeoning sectors but also demonstrates solid fundamentals and growth potential amidst current economic indicators.

Top 10 Undervalued Small Caps With Insider Buying In Australia

Name	PE	PS	Shares Bought(LTM)	Value Rating
Ridley	16.2x	0.5x	20,019,069	★★★★★★
Peter Warren Automotive Holdings	8.0x	0.2x	16,802,689	★★★★★★
Duratec	10.8x	0.5x	58,150	★★★★★☆
Michael Hill International	18.9x	0.4x	107,843	★★★★★☆
Catalyst Metals	NA	1.1x	1,599,999	★★★★★☆
SHAPE Australia	12.9x	0.2x	50,570	★★★★☆☆
GWA Group	14.7x	1.6x	22,409,861	★★★★☆☆
Aroa Biosurgery	NA	2.9x	5,353,154	★★★★☆☆
Australian Clinical Labs	33.1x	0.8x	33,780,919	★★★★☆☆
ARN Media	NA	0.8x	30,689,867	★★★★☆☆

Click here to see the full list of 21 stocks from our Undervalued Small Caps With Insider Buying screener.

Underneath we present a selection of stocks filtered out by our screen.

Reject Shop (ASX:TRS)

Simply Wall St Value Rating: ★★★★☆☆

Overview: The Reject Shop (ASX:TRS) operates in the discount variety retail sector, primarily in Australia, with a business model focused on offering a wide range of merchandise at low prices, generating revenue of approximately A$837.92 million.

Operations: The Reject Shop operates in the discount variety retail sector, primarily generating revenue through the sale of low-priced everyday items. The business model focuses on maintaining a gross profit margin around 39-44%, with net income margins generally below 2.5%. Costs are largely driven by goods sold and general administrative expenses, which consistently form the bulk of operational outlays.

PE: 17.4x

Reject Shop, a notable player in the Australian retail sector, recently added to the S&P/ASX All Ordinaries Index, demonstrates a robust financial trajectory with revenue reaching A$841.40 million and net income at A$13.29 million as of the latest report. Insider confidence is evident as Steven Fisher recently increased his stake by 7.46%, purchasing 10,000 shares for A$45,200. This move aligns with broader insider buying trends over the past three months, underscoring a positive outlook from those closest to company operations. Furthermore, The Reject Shop's P/E ratio stands at an attractive 17.4x compared to the broader Australian market average of 19.6x, suggesting potential overlooked value amidst its growth prospects.

• Take a closer look at Reject Shop's potential here in our valuation report.

• Gain insights into Reject Shop's past trends and performance with our Past report.

GWA Group (ASX:GWA)

Simply Wall St Value Rating: ★★★★☆☆

Overview: GWA Group, listed as ASX:GWA, is an Australian company specializing in water solutions and related products, with a market capitalization of approximately A$410.72 million.

Operations: Water Solutions, a segment of GWA Group, generates revenue through the sale of water management products and solutions. The company's cost structure includes a consistent gross profit margin around 39-40% and net income margin approximately 10%, reflecting efficient operational management and steady profitability in its niche market.

PE: 14.7x

GWA Group, reflecting a promising stance in the Australian market, recently saw significant insider confidence as Darryl McDonough acquired 30,000 shares for A$62,481. This move in February underscores a robust belief in the firm's trajectory. Financially, GWA reported half-year sales of A$205.97 million and a net income increase to A$23.23 million from A$21.33 million year-over-year. With earnings per share rising from AUD 0.08 to AUD 0.088, the company's strategic positioning and insider investments hint at strong future prospects amidst its competitive landscape.

• Dive into the specifics of GWA Group here with our thorough valuation report.

• Explore historical data to track GWA Group's performance over time in our Past section.

SHAPE Australia (ASX:SHA)

Simply Wall St Value Rating: ★★★★☆☆

Overview: SHAPE Australia (ASX:SHA) operates primarily in the heavy construction sector with a revenue segment totaling approximately A$841.40 million.

Operations: SHAPE Australia operates primarily in the heavy construction sector, generating revenue of A$841.40 million as of the latest reporting period. The company's business model involves substantial direct costs, with recent cost of goods sold (COGS) at A$764.57 million, resulting in a gross profit margin of 9.13%. Net income for the same period stood at A$13.29 million, reflecting a net profit margin of approximately 1.58%.

PE: 12.9x

Recently, SHAPE Australia has demonstrated notable insider confidence, highlighted by Non-Executive Director Kathryn Parsons acquiring 13,570 shares for A$21,034. This move aligns with a broader pattern of insider purchases over the past three months, signaling optimism about the company's direction. Financially, SHAPE is trading at a significant 67.2% below our estimated fair value while showing resilience in its funding strategy with no reliance on customer deposits. The firm also reported a substantial increase in its interim dividend to A$0.08 per share—a 60% rise from last year—reflecting its strong financial health and commitment to shareholder returns. These elements suggest that SHAPE Australia holds potential for growth and increased valuation amidst its industry challenges.

• Navigate through the intricacies of SHAPE Australia with our comprehensive valuation report here.

• Examine SHAPE Australia's past performance report to understand how it has performed in the past.

Summing It All Up

• Dive into all 21 of the Undervalued Small Caps With Insider Buying we have identified here.
• Hold shares in these firms? Setup your portfolio in Simply Wall St to seamlessly track your investments and receive personalized updates on your portfolio's performance.
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Searching for a Fresh Perspective?

• Explore high-performing small cap companies that haven't yet garnered significant analyst attention.
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• Find companies with promising cash flow potential yet trading below their fair value.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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