Both ASOS (LSE: ASC) and Boohoo (LSE: BOO) enjoyed online sales boosts during the Covid-19 pandemic. But the effects are already fading. The Boohoo share price is down 18% since immediately before the crash. And the ASOS share price has fallen 8%.
ASOS shares rose higher than Boohoo’s in early 2021, after having crunched to a more painful crash in the immediate onset of the panic. Why has ASOS been more volatile? Maybe it’s because ASOS is the poorer performer over the longer term, and investors saw greater potential for a rebound?
Boohoo is up 177% over the past five years, against a 32% fall for ASOS. So I suspect chart watchers might simply see the latter as better value. But why are the shares falling now? And is this a good time to buy?
End of pandemic?
Some of it will certainly be due to a reverse-pandemic effect. Now we’re emerging into a freer shopping environment, the advantage is swinging away from online-focused retailers, in theory. I am surprised by the scale of the effect on Boohoo, mind. For most of the lockdown period, the Boohoo share price was actually hovering close to its immediate pre-pandemic levels.
The ASOS share price, meanwhile, soared quite a bit higher, especially in early 2021. So a reversal of some of those gains fits in better with my expectations in that case. In fact, the relatively modest performance of Boohoo shares helped in my decision to buy some in November. They hadn’t climbed irrationally, so they were unlikely to fall, right? Wrong.
Boohoo’s problems
Boohoo does face issues in the wider world, as my Motley Fool colleague Rupert Hargreaves has explained. The problems include a US lawsuit over the firm’s pricing policies. And Boohoo has faced a fair bit of criticism in the UK over working practices.
Rupert rates Boohoo a long-term buy, and on that we agree. He also thinks the Boohoo share price price could continue to fall in the shorter term, while the current problems persist. I fear he might be right.
Meanwhile, how about ASOS? On the current ASOS share price, we’re looking at a forecast P/E of only 22. And that’s well below historical valuations. In the years before the 2020 crash, ASOS stock was regularly valued on multiples of around 70.
Boohoo share price valuation
I reckon that was way too high, as growth stocks often go. But now, I think it’s fallen a good bit too far. Boohoo’s P/E valuation has dropped similarly, though not quite as far. On today’s Boohoo share price, we’re looking at a forecast P/E of about 25. That’s not a lot higher, but it might suggest that ASOS is the better buy now.
So what will I do about these two? Well, I do share fears that both Boohoo and ASOS could be in for a weak spell. And I could see both share prices going nowhere in the short term, or even falling further.
But for the long term, the two companies’ growth prospects still look very strong to me. And I see an eventual upturn in their share prices as almost inevitable. I would be happy to buy and hold either at current prices.
