The first half of 2025 has been one of the most volatile periods in recent history. ASX investors have been taking advantage of these conditions and 'buying the dip'. 

In fact, back in April, a record number of retail investors pounced on the opportunity to buy equities at a cheaper price amid the 'Liberation Day' fallout. 

At the time, investors were undeterred by warnings of recession, stagflation, or heightened geopolitical conflict. According to the Australian Financial Review, among the most popular trades were US technology stocks, global exchange-traded funds (ETFs), and gold. 

This strategy has largely paid off, with many companies recovering strongly since April.

What could go wrong?

However, just because a company's share price has fallen significantly from its recent peak doesn't necessarily mean it is good value today. 

It's crucial for investors to understand why the shares they are interested in have 'dipped' 

Investors should determine whether this is attributed to overall market movements or specific company-related factors. 

Specific company-related factors may include a CEO resignation, the loss of a major client, regulatory breaches, declining revenue, or loss of market share. 

While any of these factors may appear detrimental on the surface, investors need to decide whether the company can recover.

Three contrasting examples

To illustrate this process, let's consider three companies that have faced significant share price declines recently. 

Monash IVF (ASX: MVF) shares are down nearly 40% this year, following two unfortunate incidents. However, on 27 June, broker Macquarie Group (ASX: MQG) said it believes the market has overreacted and reiterated its outperform rating and price target of $1.30 on the stock. Since its 52-week low of $0.55, Monash IVF shares are already 41% higher. Investors who bought in the dip that day have been strongly rewarded, and if Macquarie's forecast materialises, there is still 67% upside for investors who buy the stock today. 

Reece Ltd (ASX: REH) is a second ASX company that has faced pressure this year, declining 36% for the year to date. However, even after this decline, in a 27 June research note, Macquarie placed a neutral rating on the stock. The broker also set a price target of $14.50 for Reece shares and provided the following justification:

Continued market softness across both regions and heightened competition in the US have weighed on performance. The tariff context adds a layer of uncertainty to US market conditions. We think valuation is full, with REH trading on 28x MQe FY26 EPS (and ~22x MQe FY27 EPS).

With shares changing hands for $14.96 at the time of writing, this suggests the stock will decline slightly over the next 12 months. A final stock to consider is crowd favourite Commonwealth Bank of Australia (ASX: CBA). In late June, the ASX 200 banking stock hit an all-time high of $192. With CBA shares trading at $178 at the time of writing, investors may be wondering whether this is an opportunity to buy in the dip. However, in a 3 July research note, Macquarie affirmed its underweight rating on the stock with a price target of $105. If Macquarie's estimate is correct, the bank still has a while to 'dip' before it starts to look attractive. Investors should wait for a much bigger dip before jumping in.

Foolish Takeaway

Buying the dip is a popular investment strategy among retail investors. However, before applying this strategy blindly, investors should thoroughly investigate the reasons behind a company's share price decline and the likelihood of it recovering. Just because a company has dipped, doesn't mean it's good value.