Could ASOS plc be a millionaire-maker stock?

Bilaal Mohamed uncovers an AIM-listed stock that has the potential to outperform ASOS plc (LON:ASC).

| 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.

With ASOS’s (LSE: ASC) shares now changing hands at 5,800p it’s hard to believe that the UK’s largest online fashion retailer was once available for a measly 3p per share. If you’re busy doing sums in your head right now, then I’ll put you out of your misery and tell you that’s a 193,233% increase in the share price! A paltry £600 investment back in the day now being worth a cool £1.16m.

Hindsight is clearly a wonderful thing. But with the AIM-listed retailer continuing to deliver rapid growth, is it possible that the company’s spectacular share price rise could be repeated in years to come?

Strong sales momentum

This morning’s trading update clearly shows why ASOS continues to be ever-popular with investors. The strong sales momentum demonstrated during the first half of the financial year seems to have continued, with total retail sales up 32% to £660.1m during the four months to the end of June. Management now expects sales growth for the full financial year to August to be at the upper end of the 30%-35% range. These figures are not to be scoffed at, but nevertheless I remain cautious about the business’ sky-high valuation.

It’s been almost 16 years since ASOS was launched on the London Stock Exchange, and there’s no doubt that it will always be remembered as one of the most successful IPOs in history. But with a market value in excess of £4.7bn and already a significant international presence, I think it will become increasingly difficult to justify the shares’ hefty price tag. At 75 times forecast earnings, I’m concerned that the market’s very lofty valuation doesn’t leave much room for error when it comes to delivering on expectations .

Keep the faith

Another small cap stock that’s performed exceptionally well in recent years is Henry Boot (LSE: BOOT). The Sheffield-based land development, property investment, and construction firm has seen its pre-tax profits triple in the last few years to £39.5m from just under £13.4m in 2012.

The company’s rapid growth has not gone unnoticed by small-cap investors who’ve managed to push the share price up to and beyond the previously uncharted 300p level. Less than a decade ago, the company’s shares were being traded at less than 50p, and I think a six-fold increase is a fitting reward for loyal shareholders who have kept the faith. The question on investors’ minds will be whether to cash in on the success, or hold on for further gains.

I personally think that Henry Boot has the potential to provide investors with even greater rewards in the years to come. Increased activity in the UK property development market should help to fuel further growth as this is the area where the group generates most of its revenue. And despite the 75% share price surge over the past year, the business still trades on a very reasonable 12 times forecast earnings for 2017.

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.

Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

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

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »