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Should you buy these beaten down ASX shares?

James Mickleboro
fall, take hit, punch, boxing

I think it is fair to say that 2018 has been a bit of a mixed year for the Australian share market so far.

Despite strong gains over the last couple of months, the benchmark S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) is down 20 points since the start of the year.

While this is disappointing, spare a thought for the shareholders of the three companies listed below which have seen their respective share prices fall significantly in 2018.

Are they bargain buys now?

The Greencross Limited (ASX: GXL) share price has shed over 28% of its value in 2018. A surprisingly weak trading update at the start of May has been largely behind this decline. That update revealed that underlying EBITDA of between $97 million and $100 million is expected in FY 2018. This will be a decline of 4% and 6.7% on FY 2017 and is largely due to weakness in its veterinary business. Considering underlying EBITDA was up 8% to $56 million in the first-half, this guidance reveals a surprising and severe deterioration in the company’s performance. I would suggest investors wait for an improvement in its performance before considering an investment despite the sizeable decline.

The Metcash Limited (ASX: MTS) share price has fallen 13.5% since the start of the year. This decline has been driven largely by news that one of its major customers, Drakes South Australia, is unlikely to renew its supply agreement with Metcash when it comes to an end in the near future. Not only will this create a reasonable gap in its earnings and has led to a massive asset impairment charge, there are concerns that others could follow in the footsteps of Drakes South Australia in the future. This is the last thing that Metcash wanted to happen when it is already under pressure from the rise of Aldi in Australia. While its shares look to be good value now, I think there are a lot of unknowns that make it a share to avoid at this point.

The Telstra Corporation Ltd (ASX: TLS) share price has tumbled over 23% since the turn of the year amid concerns that another dividend cut is imminent. With this potential dividend cut now priced into its share price, it certainly does make Telstra’s shares an attractive option. However, I would suggest that investors wait until next week’s strategy day before making a move. There is speculation that the telco giant could reveal its dividend cut at this event. If there is one and it is more severe than expected, its shares could yet fall further.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Greencross Limited and Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.