There has been a large divergence in the performance of different UK shares this year. Some, such as those operating in the oil and gas space, have done well. Others have fared much worse. One stock has caught my eye — it has fallen by 75% over the past year.
Clearly there are reasons for this, but could it be a great value buy for me to end 2022?
A tough year in review
The company I’m referring to is ASOS (LSE:ASC). The fast fashion retailer currently has a share price of 547p, well below the levels around 2,000p that it enjoyed at the end of 2021.
The 2022 annual report was released last month, highlighting where most of the problems have come from. The business flipped from an operating profit of £190.1m in 2021, to a loss of £9.8m in 2022. This fed through to the bottom line, with reported loss before tax of £31.9m (versus a profit of £177.1m last year). As the business had revised expectations lower in trading updates over the year, the share price tracked lower accordingly.
In the report, it spoke of the “unprecedented geopolitical and macroeconomic challenges we face”. The business has struggled with cost inflation. This has caused distribution and warehouse costs to rise, as well as labour costs.
This is compounded by the fact that the company specifically targets young people. This group typically earns less and has a higher sensitivity to changes in the price of goods as they feel the pinch more. With rising inflation and a cost-of-living crisis, it’s going to be tough to encourage spending.
Trying to find value in the UK share
Going forward, I’m not that convinced about a sharp turnaround. The report commented that “within the UK, we expect a decline in the apparel market over the next 12 months”. ASOS expects to be able to grow market share, but having a larger piece of a smaller pie doesn’t really excite me.
If there’s little value for the next year, what about further down the line? Even though it has a net debt position of £152.9m, this isn’t excessively high. So I don’t expect it to have severe financial trouble anytime soon. I also feel that it has a good position in the fashion market, one that should yield future profits when we get an economic recovery.
Yet I feel therein lies the reason why I don’t think I’ll buy ASOS stock right now. Even though my long-term view is positive for the company, the medium term (the next year) looks pretty bleak. I’m not trying to perfectly pick the lowest level the share price could reach, but I do think it could go lower from here.
Therefore, I feel there are better value stocks with brighter outlooks that I’m considering for my cash as we go into 2023.
