Down 72% form its highs, why this ASX small-cap stock is now 'a bargain'

ASX small-cap stock Hipages Group Holdings Ltd (ASX: HPG) has been heavily sold in the last month of trade and is down 14% in that time.

The stock finished the session at $1.11 apiece on Monday, more than 22% off its 52-week high of $1.43 in August.

But for savvy investors eyeing opportunities in ASX small-cap stocks, Hipages may offer an intriguing turnaround story if a handful of experts are correct in their bullish view. Let's take a look.

ASX small-cap stock ready to rebound

Hipages is a 'tradie marketplace' that lets individuals and businesses link up with various tradespersons here in Australia.

Say you need a tradie in your local area to fix the tap, or repair a dent in the wall. You might jump onto Hipages and see what local services there are.

After a strong run in the 2021 to 2022 period, shares hit an all-time high of $4.10 apiece.

But the ASX small-cap stock was heavily sold when high inflation and interest rates sowed their way into markets, resulting in sharp losses for investors.

Despite this, Matthew Brooker from Spheria Asset Management sees Hipages as a standout in the sector.

Brooker says the firm has changed from a pay-per-lead business model to a subscription service, which means growth is more visible. Speaking to The Australian Financial Review:

Hipages continues to win market share and is now the leading tradie marketplace in Australia and New Zealand.

We're confident profitability and free cash flow generation will continue to expand from here..[it is] a bargain for a growing technology business with a subscription model.

And Brooker would be largely correct in his views on the ASX small-cap stock's financials.

Revenues were up 13% to $75 million in FY24, with recurring revenue rising 15% to $72 million. Annual revenue per user (ARPU) also rose 11%.

It also facilitated a record-breaking 2.7 million tradie-homeowner connections, with 86% of jobs matched to at least one tradie.

Growth outlook for FY25

The ASX small-cap stock is targeting FY25 revenue growth in the "low teens", consistent with FY24.

It also expects pre-tax margins to expand by 1 to 2 percentage points. Free cash flow is forecast to hit $4 to $6 million.

At its AGM last month, CEO Roby Sharon-Zipser said the company was better positioned under its subscription model, along with efforts in its Tradiecore initiative.

He said that job volumes had started to return to growth, with Tradiecore delivering "another record quarter".

Our subscription model gives us great visibility over future revenues and our operating model is highly efficient and scalable, which will continue to deliver enhanced operating leverage and margin expansion over time.

Meanwhile, the consensus of broker estimates rates Hipages a buy, according to CommSec.

Foolish takeout

This ASX small-cap stock is catching the eye of brokers and fundies alike with its recent performance and growth outlook.

Whether or not they are correct, time will tell.

In the last 12 months, the Hipages share price is up 59%.

The post Down 72% form its highs, why this ASX small-cap stock is now 'a bargain' appeared first on The Motley Fool Australia.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Hipages Group. The Motley Fool Australia has positions in and has recommended Hipages Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2024