The ASOS share price jumps on ESG strategy. Should I buy now?

The ASOS share price moved higher last week after the firm published a new ESG strategy, but how will this affect the business? Zaven Boyrazian investigates.

| 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.

It’s been a rough year for the ASOS (LSE:ASC) share price. While the stock started 2021 strongly, it didn’t last. And consequently, it’s now trading around 36% lower than 12 months ago. But last week, the company unveiled a new ESG strategy that triggered a notable bump in the ASOS share price. What does this mean for the business over the long term? And is it primed to make a comeback? Let’s take a look.

The falling ASOS share price

Unlike most retail businesses, ASOS thrived throughout 2020. In fact, between March and December, the share price surged by over 350%. With lockdown restrictions forcing most clothing retailers to close their doors, this group’s online-only business model enabled it to push revenues and profits to new all-time highs.

But as we’ve seen this year, the upward momentum didn’t endure. With the vaccine rollout making significant progress, non-essential stores have now reopened. As a consequence, consumers are no longer restricted to buying clothes online. Looking at the trading update released in July, ASOS had already seen its sales growth start to slow. And investors were less than pleased, resulting in the underwhelming performance of ASOS share price.

The ASOS share price has its risks

A renewed ESG plan

Despite the slowing growth, the stock did rise last week after management released its new ESG plan for the next eight years. The company intends to reduce its carbon emissions from direct operations to zero by 2025 and eliminate them across its entire supply chain by 2030. Meanwhile, it wants to transition all of its products and packaging to utilise only recyclable materials before the end of the decade.

It’s also pushing for greater diversity among its employees and management. And intends to publish a detailed human rights strategy report every year from 2023 to increase the transparency of its operations and that of its third-party brands.

Needless to say, this sounds like a good idea. So, I can see why ESG investors are excited, leading to the recent boost in the ASOS share price. Personally, I remain sceptical. From my experience, the term ESG has become a bit of buzz word that many companies fail to deliver on. After all, it wasn’t long ago that rival firm Boohoo was proclaiming its efforts towards sustainability before being accused of poor working practices in its supply chain.

The bottom line

As an individual, the plan outlined in the new strategy is admirable. But as an investor, until I see active results and progress being made, this latest report has little influence on my opinion about the future of the ASOS share price.

Having said that, the last time I looked at this business, I decided that it looked promising, but the price tag was too high. In retrospect, that was a wise conclusion. Today the stock is priced at a P/E ratio of around 18. That certainly seems far more reasonable in my mind, even with the recent slowdown in sales. Therefore, despite my scepticism, I am considering adding this business to my 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 considered so you should consider taking independent financial advice.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK 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

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

I’d drip-feed £350 monthly into a Stocks and Shares ISA to aim for a million

Reaching millionaire status with only £350 a month may sound ludicrous, but Zaven Boyrazian explains how it can be done…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

I raided the FTSE 100 for 2 cheap income stocks

After their share prices slid, I bought these two cheap FTSE 100 dividend stocks. At these low prices, their cash…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

2 simple steps to earning £400 in monthly passive income

Building a monthly passive income stream doesn't have to be complicated, or require a lot of effort. Zaven Boyrazian explains…

Read more »

Female analyst sat at desk looking at pie charts on paper
Investing Articles

Here’s how I’d invest £10,000 for the next FTSE 100 bull market

Is the FTSE 100 heading for a new bull market? After the past decade we've had, investors could do with…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

With a spare £500 I’d buy these UK shares

A financial services giant, a FTSE 250 distributor, a FTSE 100 tech stock, and a gold miner are on the…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Should I buy this defensive FTSE 100 stock for growth and returns?

This Fool takes a closer look at a FTSE 100 stock to see if it could boost his holdings via…

Read more »

Young female analyst working at her desk in the office
Investing Articles

I robbed Mr Market of this cheap FTSE stock!

This FTSE 250 stock has crashed by almost 30% in six months. But I recently bought into this battered business…

Read more »

Mature people enjoying time together during road trip
Investing Articles

3 reasons I’m backing NIO shares to soar!

NIO shares have bounced up and down this year. But where will the share price go next? My bet is…

Read more »