Buy Hold Sell: 3 ASX stocks the market loves (and 2 that are flashing red)

Every now and then, a company captures the attention of the entire market. Like lightning in a bottle, these companies are typically doing something innovative, disruptive and, more often than not, something that was previously considered impossible.

The narrative around the company fuels the share price, and vice versa, and provided earnings keep up, a market darling is born.

A previous example was Afterpay, which rocketed to notoriety, riding a wave of Buy-Now-Pay-Later fever. A current example is Life360 (ASX: 360) which has achieved market darling status and has been named by some as the most compelling growth stock on the ASX right now.

So what are the stocks that the market is loving today? And are there any that have run too hard, with their share prices and outlooks departing from reality?

To answer those questions, Livewire’s Ally Selby was joined by Andrew Peros from Ausbil and David Keelan from Ellerston. In this episode, they run the ruler over three market darlings, and each name a stock they think is flashing red. 

Note: This episode was recorded on Wednesday 20 November 2024. You can watch the video, listen to the podcast or read an edited transcript below.

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Edited Transcript 

Ally Selby: Hey, how are you doing? Welcome to Livewire's Buy Hold Sell. I'm Ally Selby and today we're taking a look at three stocks fund managers are absolutely loving at the moment, as well as two punter favourites that they believe are flashing red. To do that, we're joined by Andrew Peros from Ausbil and David Keelan from Ellerston.

Life360 (ASX: 360)

First up today we have a family tracking app, Life360. It's widely loved by the investment community and punters alike. It's seen its share price rise around 170% over the past year. Andrew, I'm going to start with you today. Is it a buy, hold or sell?

Andrew Peros (BUY): Ally, it's a strong buy for us. Look, the starting point when we think about Life360 is that anything you care about, you're going to know where it is. So your kids, your family, your car, your laptop, or your grandmother with Alzheimer's disease. So that creates an opportunity that 360 can grow into. It's a new part of the market. It's evolving. They have 77 million active users, and they've been able to monetise those users quite incredibly to date. So through advertising, pet insurance, motor vehicle insurance, financial services, and elderly tracking. So it's a business that we really like. It's actually the fastest-growing SaaS business on the ASX. Trading at five times EV to sales, much cheaper than TNE (TechnologyOne) or WiseTech. So, a strong buy for us.

Ally Selby: Its CEO recently sold around $32 million worth of stock, which is usually a little bit of a red flag. Is that a red flag to you, David?

David Keelan: It's always a red flag, but you need to understand the context of why they sold. Not too sure there's any real context around this. He's done well andmade some money; he's allowed to take some off the table. We had a bigger position leading into results; we trimmed beforehand. We believe that it was a true ‘buy the rumour, sell the fact’, which it's turned out to be. Market expectations are way ahead of what they're doing. They're hitting every goal, but still, the share price can't go up. They've got 77 million active users, as Andrew said. The core part of the business is doing really, really well. The next part is the turn on the ad spending. That is in its infancy, so we'd rather wait and see and take our money and reinvest it in other opportunities.

Ally Selby: So is it a buy, hold, or sell?

David Keelan (BUY): It's a weak buy.

Universal Store Holdings (ASX: UNI)

Ally Selby: A weak buy. Okay. Next up today we have youth retailer, Universal Store Holdings. This is another darling loved by fund managers. Its share price is up 131% over the last 12 months. David, is it a buy, hold, or sell?

David Keelan (BUY): It's still a buy. It's probably got one of the best ASX retailer store rollouts available. It's got a demographic that was hit pretty hard the last couple of years, and now they've come back. They really understand retailing, they understand products, they understand private labels. So, yes.

Ally Selby: Okay. Do you agree, Andrew?

Andrew Peros (BUY): Absolutely. It's a buy for us, Ally. It's probably one of the best micro-cap apparel retailers out there at the moment. Alice Barbery is an excellent operator. Unit economics on the store rollout program are quite attractive. There's plenty of runway for the business to grow. Like-for-likes have turned sharply positive of late, so we're quite enthused by that. So, it's a buy.

ARB Corporation (ASX: ARB)

Ally Selby: Okay. Next up we have a four-wheel drive and commercial vehicle accessories producer, ARB Corp. It's another widely-held darling. Its share price has risen around 30% over the past year. The last one for you, Andrew. Is it a buy, hold, or sell?

Andrew Peros (HOLD): It's a hold for us at the moment, Ally. I am a little bit cautious about market expectations going into the February result. Australian motor vehicle sales have been a little bit soggy. There could be a little bit of margin pressure coming through from freight and labour, and maybe the US rollout strategy is tracking just a little bit behind. But that said, this is a high-quality, founder-led company. They've got a long history of success. If there is any volatility around the share price, it's a buy-the-dip moment.

Ally Selby: Okay. Over to you, David. Is it a buy, hold, or sell?

David Keelan (SELL): It's a sell. It's a quality company with a great track record, but at the end of the day, it's trading on 30x forward P/E. The market is way ahead on the margin expectations. I'd rather put my money somewhere else.

Guest picks

Ally Selby: Okay. We asked our guests to bring along a punter favourite that they believe is flashing red; something that should send you running for the hills. David, what have you brought for us? What are you selling?

Audinate (ASX: AD8)

David Keelan: Ours is Audinate. We think Audinate has a really great product. Dante is the industry de facto in audio, but the stock is priced like a SaaS business. What we've learned over the last 18 months is that their revenue is lumpy, their backorder book is declining, and they've gone from making money to losing money.

Ally Selby: Over to you, Andrew. What stock would you be running from right now?

Droneshield (ASX: DRO)

Andrew Peros: The stock I'm going to talk about is DroneShield, ticker D-R-O. Look, it's been a wild ride for the share price. At the start of the year, it was at 38 cents. It hit a high of $2.50 and had a market cap of $2 billion. That's despite very little, if any, earnings upgrades from the market. The backdrop for this company is that it is hyped up quite a lot. There's a lot of euphoria in the share price, which hasn't really been backed up by earnings revisions.

Trump was recently elected President. He has committed to many things, but one of those things is to end the war in Russia and Ukraine and bring peace to the Middle East. And if that's the case, that's probably going to leave a gaping hole in terms of market opportunity for DroneShield. In 2023, they had over half of their revenue coming out of Ukraine. In 2024, there's a large chunk as well. There is earnings risk. Not to say that we won't look at it ever, but at the moment I think there's plenty of earnings risk, so probably heads a little bit lower from here.

Ally Selby: Okay. Well, I hope you enjoyed that episode of Buy Hold Sell as much as I did. If you did, why not give it a like. Remember to subscribe to our YouTube and podcast channels, we're adding so much great content just like this every single week.