ASOS shares just tanked. Here’s my move now

The ASOS share price fell 13% yesterday after the company posted its full-year results. Edward Sheldon looks at whether he should buy, sell, or hold.

| 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.

sdf

Shares in online fashion retailer ASOS (LSE: ASC) have had a bad run. Yesterday, the stock fell 13% after the company posted its full-year results for the year ended 31 August. Over a year, the share price is down more than 50%.

This share price performance is very disappointing for ASOS investors, myself included. No one likes to see their investments blow up like this. So what’s the best move now? Should I sell my ASOS shares, hold onto them, or buy more?

ASOS: full-year results

Yesterday’s results did contain some positives, to my mind. Full-year revenue, for example, was up a healthy 22% on a constant-currency basis to £3.9bn. Most retailers would kill for that kind of top-line growth.

Another highlight was the growth in the active customer base. This was up 13% year-on-year to 26.4m shoppers.

These figures suggest to me that the company’s still heading in the right direction.

Why the ASOS share price crashed

There were definitely some negatives in the report though. For example, gross margin for the year was down 2% to 45.4%, driven by elevated freight and brexit-related duty costs, product mix, FX headwinds, and increased customer investment.

ASOS said it expects the supply chain pressures to continue throughout the first half of this financial year. This means longer lead times and constrained supply from a number of its partner brands.

Another negative was the short-term revenue outlook. H1 revenue is only projected to be up mid-single digits, due to tough comparables in the first half of the year. Meanwhile, pre-tax profit for the year ahead is expected to be well below analysts’ forecasts.

On top of all this, the company announced that CEO Nick Beighton is set to step down. Right now, it doesn’t have a replacement lined up. This is certainly not ideal.

Overall, it’s not hard to see why the ASOS share price tanked yesterday.

Short-term challenges

Looking at these results and the outlook, it’s clear to see that ASOS faces some challenges right now.

However, the thing is that most companies in the industry are facing very similar challenges. After a huge year for e-commerce last year, revenue growth across the sector is underwhelming, due to tough comparables.

Meanwhile, supply chain challenges and higher costs are hitting profits across the industry. We’ve seen the same trends at a number of major clothing companies recently, including Nike and Boohoo.

To my mind, these are most likely short-term issues. Over time, we should see revenue growth normalise and supply chain challenges and higher costs subside.

My move now

So, what am I going to do with my ASOS shares? I’m going to hold onto them and I may buy some more.

Ultimately, I still like the company. I think it offers a great service and I expect it to recover from the short-term setbacks it’s experiencing now. I think the growth story here is still intact. After all, revenue is up 63% in just three years. Looking ahead, ASOS is targeting annual revenues of £7bn.

Of course, there are a few risks to keep an eye on. Supply chain challenges could persist for longer than anticipated. Competitors could steal market share. The lack of a CEO adds uncertainty.

Overall however, I think ASOS shares offer an attractive long-term risk/reward proposition right now.


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.

Edward Sheldon owns shares of ASOS and boohoo group. The Motley Fool UK owns shares of and has recommended Nike. The Motley Fool UK has recommended ASOS and boohoo group. 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

Shot of an young mixed-race woman using her cellphone while out cycling through the city
Investing Articles

Is there value in Baltic Classifieds — a soaring growth stock that brokers are buying?

Baltic Classifieds has surged after broker upgrades. Mark Hartley asks whether this FTSE 250 stock is really worth buying now.

Read more »

Close-up image depicting a woman in her 70s taking British bank notes from her colourful leather wallet.
Investing Articles

£20k in an ISA? Here’s how it could be used to target £423 of passive income each month

Earning money from dividends in an ISA is one way to set up passive income streams. Our writer explains how…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Investing Articles

Which is better: £100,000 or a second income of £5,481 per year?

Dividend stocks and government bonds are both worthy ways of earning a second income. But which is a better choice…

Read more »

Road 2025 to 2032 new year direction concept
Investing Articles

With interest rates falling, dividend stocks could be the key to passive income between now and 2030

In the years ahead, dividend stocks are likely to offer far more potential for passive income than savings accounts, says…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

After a 15% decline, should I move on from this FTSE 100 stock?

An investment in a FTSE 100 restructuring situation isn’t going the way our author had anticipated. Should he sit tight,…

Read more »

Pakistani multi generation family sitting around a table in a garden in Middlesbourgh, North East of England.
Investing Articles

If a 30-year-old puts £500 a month into a Stocks and Shares ISA, they could have £2.3m at retirement!

Starting early, picking wisely and investing £500 a month from age 30 might just lead to a multi-million-pound Stocks and…

Read more »

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

Here’s what needs to happen for the Lloyds share price to reach £1

The Lloyds share price is up 40% since the start of the year, but could it continue to climb all…

Read more »

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

Here’s how investing £10,000 a year can lead to annual passive income of £67,000

This writer explores two different stock market approaches to building up a sizeable passive income figure. Both can generate significant…

Read more »