ASX Stocks: 31.3% to 41.2% Below Intrinsic Value

In the ever-evolving landscape of the Australian Securities Exchange (ASX), investors are constantly on the lookout for undervalued stocks that offer significant upside potential. Morningstar's recent research has identified three ASX-listed stocks that are estimated to be trading at substantial discounts to their intrinsic values, presenting compelling investment opportunities for those willing to do their due diligence.

1. TechnologyOne (TNE)
- Morningstar Rating: 5-star (Undervalued)
- Fair Value: $11.50
- Uncertainty: Medium
- Economic Moat: Narrow

TechnologyOne, a leading provider of enterprise resource planning (ERP) software, is estimated to be trading at a 41.2% discount to its intrinsic value. The company's software-as-a-service (SaaS) model delivers 90% recurring revenue, with total annual recurring revenue reaching $470 million in fiscal year 2024, a 20% increase on the prior corresponding period. TechnologyOne's strong financial performance, strategic growth initiatives, and innovative products position it as a top performer in 2025.



2. Xero (XRO)
- Morningstar Rating: 5-star (Undervalued)
- Fair Value: $105.00
- Uncertainty: Medium
- Economic Moat: Narrow

Xero, an online accounting software provider, is estimated to be trading at a 31.3% discount to its intrinsic value. The company's exceptional growth trajectory and innovation position it as a top performer in 2025. First half 2025 revenue of $NZ996 million was up 25% on the prior corresponding period, with annualised monthly recurring revenue of $NZ2.2 billion up 22%. EBITDA of $NZ312 million was up 51%, reflecting strong operational execution. Xero's strategic investments drive its market leadership, with 4.2 million subscribers and a 15% rise in average revenue per user to $NZ43.08.



3. Macquarie Group (MQG)
- Morningstar Rating: 4-star (Undervalued)
- Fair Value: $165.00
- Uncertainty: High
- Economic Moat: Wide

Macquarie Group, a diversified global financial services group, is estimated to be trading at a 35.8% discount to its intrinsic value. The company's long and proven track record of success, coupled with its exposure to the growing global economy and commodities sector, positions it for strong performance in 2025. Macquarie's first half 2025 net profit of $1.612 billion was up 14% on the prior corresponding period, despite analysts expecting a brighter outlook. The company's robust cash flow generation and strategic acquisitions, such as the acquisition of the European wealth management business of Bank of America Merrill Lynch, further enhance its growth prospects.

In conclusion, investors seeking undervalued ASX stocks with significant upside potential should consider TechnologyOne, Xero, and Macquarie Group. These companies' strong fundamentals, strategic growth initiatives, and innovative products position them for robust performance in 2025. However, investors should conduct thorough due diligence and consider their own risk tolerance and investment objectives before making any investment decisions.