2 ASX blue chip shares I would buy in case market falls further
History tells us that the best investments often come when excellent businesses with high returns on capital and long growth runways start trading cheaply because of exaggerated fears or temporary concerns.
Such opportunities do not come frequently because high quality companies usually trade at premium valuations.
The following two undervalued ASX stocks fit this description very well as they are high quality businesses currently trading at lower valuations despite strong fundamentals and long-term growth potential.
Xero Limited (ASX: XRO)
is one of the most undervalued ASX stocks right now as it has fallen 54% in the past 12 months because of AI fears and competition concerns even though management believes AI will improve its long-term competitive position.
The company in H1 FY26 reported operating revenue of NZ$1,194 million which was up 20% year-on-year while adjusted EBITDA was NZ$350.9 million with a 29.4% margin.
Free cash flow was NZ$321 million with a 26.9% margin and this was supported by 4.59 million subscribers worldwide while churn was near 1% on a monthly recurring revenue basis which is very impressive.
A major competitive advantage is its role as the source of truth for SMB financial data which creates high switching costs and this allows the company to add more services on its core accounting platform.
The outlook is positive because management highlighted a large and expanding total addressable market and expects AI to expand the SaaS market opportunity over time which should drive future growth.
Life360, Inc. (ASX: 360)
has declined 42.5% year-to-date which is due to a broader tech selloff and market concerns rather than business performance.
The company in FY25 reported strong financial growth because revenue rose 32% year-on-year to US$489.5 million and Adjusted EBITDA reached US$93.2 million with a 19% margin which puts it on the list of undervalued ASX stocks right now.
It now has a large global platform with about 95.8 million monthly active users and 2.8 million paying circles across more than 180 countries which shows strong scale and recurring subscription revenue potential.
Its competitive advantage comes from its position as a family safety super app which combines location sharing, crash detection, emergency dispatch, digital safety, pet tracking and device tracking in one platform which creates high switching costs and user retention.
The outlook is positive because the company plans to grow subscriptions monetise its large user base and expand into new services which can increase revenue per user and margins.
(Source: Company Announcements)
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