3 undervalued ASX stocks with long term potential

Some of the best investments often come from buying high-quality businesses when sentiment is negative and fear dominates headlines which is why investors should track undervalued ASX 200 stocks during market selloffs.

Periods of panic and broad sector wide declines can create opportunities where prices fall faster than underlying fundamentals.

Here are three undervalued ASX 200 stocks which fit this description at their current valuations.

Xero Limited (ASX: XRO) 

is one of the most compelling undervalued ASX 200 stocks as its share price has declined almost 60% over the past 12 months because of a broad sector wide selloff driven by AI fears.
The company in H1 FY26 reported operating revenue of NZ$1,194 million which was up 20% year-on-year while adjusted EBITDA reached NZ$350.9 million with a 29.4% margin.

Free cash flow was NZ$321 million with a 26.9% margin which was supported by 4.59 million subscribers globally while churn remained around 1% on a monthly recurring revenue basis which was below long-term pre pandemic averages.

The Melio acquisition has strengthened its US payments footprint which led to pro forma revenue growth of 24% and US revenue growth of 53% and accelerated scale in a large total addressable market.

Xero benefits from high switching costs because accounting software sits at the core of a business’s financial records, payroll, invoicing, tax compliance and integrated payments which makes migration complex and risky for small and medium businesses.

Catapult Sports Limited (ASX: CAT) 

reported a strong 1H FY26 performance which explains why it is discussed among undervalued ASX 200 stocks despite being on a decline since November 2025.

Revenue increased 16.9% year-on-year to US$67.6 million while Annualised Contract Value reached US$115.8 million which was up 19% on a constant currency basis.

Management EBITDA rose 56% to US$9.7 million which lifted margins to 14.4% while Free Cash Flow improved to US$8.2 million excluding transaction costs which shows profitability is expanding alongside growth.

Recurring revenue accounted for 94% of total revenue which highlights the predictability of the subscription model and supports the investment case.

The stock has faced pressure because investors moved away from growth and software companies during a period of broader risk aversion despite these stronger fundamentals.

This gap between operational performance and market sentiment explains why Catapult is viewed as one of the undervalued ASX 200 stocks.

Treasury Wine Estates Limited (ASX: TWE) 

has fallen 58.72% over the past 12 months which places it among undervalued ASX 200 stocks for long-term investors.

The group in 1H26 delivered EBITS of $236.4 million which was in line with December guidance while reported NPAT was $128.5 million before material items.

Statutory NPAT showed a loss because of a non-cash impairment of US based assets of about $987.6 million which reduced reported earnings but did not reflect the strength of the underlying brands.

Net sales revenue reached $1.3 billion while EBITS margin was 18.2% and cash conversion was 82.4% which indicates operating cash flow remains resilient despite softer category conditions.
The company currently provides an annual yield of 8.89% while management expects 2H26 EBITS to exceed 1H26 due to better California execution after the distribution transition.

(Source: Company Reports)