WARNING: You’re Missing Out On The ASOS plc Recovery

As ASOS plc (LON: ASC) moves higher, now could be the time to buy!

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

On 21 October, one of ASOS‘s (LSE: ASC) Executive Directors, Nick Beighton, spent just under £500,000 acquiring 22,150 ASOS shares — a great vote of confidence by any measure. ASOS

This huge trade was placed just after ASOS unveiled a 14% fall in full-year pre-tax profits to £47m, thanks to the impact of a strong pound, infrastructure investments and a huge fire at the company’s Barnsley warehouse.

Still, ASOS’s shares rallied after the release of these results, as the company beat City expectations. What’s more, sales are still growing at an annual rate of more than 25%, a rate of growth that many companies would pay handsomely to achieve.

That being said, profits are expected to remain constant for the next year or so, as the group invests for growth. After this period of investment, ASOS should be well placed to start growing again and out manoeuvre competitors. 

Calling the bottom 

After several profit warnings this year, investors had all but given up on ASOS heading into last week’s results. The company’s shares have fallen around 62% year to date, a decline that would leave even the most seasoned investor concerned. 

However, it would appear as if Mr Beighton has timed the market correctly with his share purchase, picking a bottom in ASOS’s declines. Now, the company’s shares have begun to head higher again and it could be the time to buy in. 

Lower valuation

ASOS’s declines over the past 12 months have been powered by the company’s own success. As sales and profitability grew rapidly, investors were prepared to pay a premium for ASOS’s shares. Indeed, during 2013 ASOS traded at a P/E ratio of around 100, a sky-high multiple that left plenty of room for disappointment. 

However, now the company’s forward P/E has declined to a still high, but manageable 49. What’s more, many City analysts and investors alike believe that as ASOS is not a traditional retailer, it should be valued on sales not earnings. Using this metric, the company is now significantly undervalued compared to sector peers.

Specifically, ASOS currently trades a price to sales ratio of around two, peer Boohoo.com currently trades at a P/S ratio of 4.5, Next trades at a P/S ratio of 2.5 and Burberry trades at a P/S ratio of 4.3. So, after taking these figures into account it seems that at current levels, ASOS is undervalued compared to sector peers. 

It’s up to you

Still, while now may be the time to buy ASOS as the company’s shares power higher, following a set of better-than-expected results, only you can decide if ASOS still deserves a place within your portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended Burberry. The Motley Fool UK owns shares of ASOS. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »