Could ASOS plc Double To £42?

Believe these projections and ASOS plc (LON: ASC) could be worth buying.

| 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.

ASOSOnline fashion retailer ASOS (LSE: ASC) has suffered a tough 2014. The shares have plunged from £70 to £21 since February following various warnings about additional costs needed to expand the business further. It’s meant the group’s forthcoming annual results will show profits treading water despite sales soaring 27%.

But could now be the time to buy? Possibly.

For one thing, sales at ASOS have more than quintupled since 2009 and the group still reckons it can expand the top line from the current £975m to £2.5bn. Plus, there is the chance margins may get back to the 8% seen prior to the recent setbacks.

Here’s one scenario

Let’s say sales continue to advance at 27% a year, which will mean the sales milestone of £2.5bn is reached in four years’ time. Let’s also say margins return to 8% as well.

If those assumptions come good, we get operating profits of £200m and earnings of perhaps £156m.

Then assume a P/E of 20 and the current share count stays at 83 million, and the share price in 2018 could be £37.

That would equate to a 15% average annual share-price gain, which seems attractive to me.

Here’s another scenario

Let’s say sales advance at a 20% average a year, which will produce the sales milestone of £2.5bn in five years’ time. Let’s also say margins actually grow to 9%.

If those assumptions come good, we get operating profits of £225m and earnings of perhaps £176m.

Once again assuming a P/E of 20 and the current share count stays at 83 million, then the share price in 2019 could be £42.

That would also equate to a 15% average annual share-price gain. Again, not bad.

All told, while these scenarios may not say ASOS is a screaming buy right now, my rough sums do suggest there is a chance of decent double-digit gains to be had should sales continue to grow and margins recover.

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.

Maynard Paton has no position in any shares mentioned. 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 Company Comment

Hand of person putting wood cube block with word VALUE on wooden table
Company Comment

Value has been building behind the Diageo share price

Despite the business growing, the Diageo share price first reached its current level just over 19 months ago and hasn't…

Read more »

Older couple walking in park
Investing Articles

5 stocks to buy for high and rising dividend income

I can see a host of shares to buy on the FTSE 100 offering me exceptional levels of income. Here…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

I don’t care if FTSE 100 shares fall further, I’m buying them today

I'm happy to go shopping for FTSE 100 shares today, even though I accept that they could have further to…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Rolls-Royce shares are down 18% in a month and I’m finally going to buy them

Investors who bought Rolls-Royce shares have been repeatedly disappointed, but I'm willing to take a chance on them before they…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

How I’d invest £10k in a Stocks and Shares ISA today

Now looks like a good time to buy cheap FTSE 100 shares inside a Stocks and Shares ISA. These are…

Read more »

Black father holding daughter in a field of cows
Investing Articles

Today’s financial crisis is the perfect moment to buy cheap shares

I'm building a portfolio of FTSE 100 stocks by purchasing cheap shares whenever I see an opportunity. There's a good…

Read more »

Long-term vs short-term investing concept on a staircase
Investing Articles

I’d buy Tesco shares in October to bag their 5.4% yield 

Tesco shares have fallen lately but I think this makes them attractively valued for a dividend stock I would aim…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

I would do anything to hold Diageo in my portfolio (but I won’t do that)

Diageo is one of my favourite stocks on the entire FTSE 100 and I'd love to hold it, but one…

Read more »