Online fashion retailer ASOS (LSE: ASC) is one of the biggest British corporate success stories in recent years. It has progressed from being a niche business focused on celebrating celebrity style and fashion to the go-to destination for fashion-conscious twentysomethings. In doing so it has become hugely profitable and is now exporting its proven business model to all four corners of the globe.
Looking ahead to next year, ASOS is due to revert back to growth following a three-year period of challenges. For example, it has struggled to develop the following among consumers abroad as had been expected by the market, so has forgone its desired level of margins in favour of improving sales numbers. And, in the long run, it seems to be well-positioned to post impressive levels of top and bottom line growth.
The problem for investors, though, is that ASOS’s share price remains rather high. For example, it trades on a price to earnings growth (PEG) ratio of 2.1 which, for a business which is due to report three consecutive years of declining profit, hardly screams ‘value’. As such, it may be prudent to await a pullback in its share price before buying a slice of what is undoubtedly a high-quality business.
Similarly, Gulf Keystone Petroleum (LSE: GKP) has a very appealing asset base, with the Iraq/Kurdistan region remaining one of the last great untapped resources of the world when it comes to black gold. And, despite being situated in close proximity of a major conflict zone and being owed £millions by the Kurdistan Regional Government (KRG), Gulf Keystone has continued to operate and make progress with its output.
Despite this, there are still question marks over the long term outlook for the business. The political situation in Iraq/Kurdistan remains very unstable and, although the KRG is beginning to make cash payments, there is still a risk that Gulf Keystone will not receive the full amount owed in a timely fashion. Add to this the low oil price and it appears as though there are simply better options elsewhere in the oil production space – especially with valuations being so low at the present time.
Meanwhile, Quindell (LSE: QPP) remains a company with a very unclear future. While it has sold off its professional services division to Slater & Gordon for around £640m, there is a question mark over whether it will be able to return a large chunk of the money to investors. That’s because it is the subject of a Serious Fraud Office (SFO) investigation as well as a potential lawsuit from disgruntled investors.
Furthermore, Quindell is at the very start of its process to develop into an insurance technology and telematics business. Although this could prove to be a highly successful move, there appears to be a long way to go before it reaches its full potential. As such, it appears to be a stock worth watching rather than buying – at least until there is greater clarity regarding its long term future.
