The ASOS (LSE: ASC) share price has crashed nearly 90% in five years, despite it soaring along with other online sellers in 2020, one of the few boosted by Covid.
But that was only a blip, and the shares soon turned down again. Still, I’ve been looking at both ASOS and fellow fashion seller boohoo Group. And see things I like about the former.
Both prices kept mostly in step over the past year. But while boohoo is on the way up in 2023, ASOS has turned tail.
Also, forecasts out to 2025 don’t show boohoo getting back to profit. But those for ASOS do.
Low valuation
The City folk seem to think ASOS should post a profit as soon as 2024. And it would give us a price-to-earnings (P/E) ratio of 16.
The ASOS P/E had reached over 120 in 2019 and, well… maybe it’s best not to think too much about those days.
Whether a P/E of 16 is good value now is up for debate. A lot will depend on how far inflation and interest rates go, and how much spare cash people have to spend on clothes.
But look ahead to 2025, and the pundits think the P/E will drop to less than 10. If that comes off, I think it could make ASOS shares look like a steal right now.
Shorting
One thing does scare me a bit. This is the third most shorted stock on the UK market right now. That’s according to the Financial Conduct Authority (FCA), which reckons 5.7% of its shares are sold short.
Why? Well, hedge funds clearly think the share price has further to fall. But they do tend to have a short-term view.
And a price held back by shorters might even make for a better buy for long-term investors. That is, if they’re wrong about the company itself.
Revenue
For Q1 this year, ASOS posted revenue of more than £1.3bn. That would be £5.2bn for the full year, if we see the same thing four times. Q1 did include the Christmas period, though, so maybe I hope for a bit too much.
But the board did say we should see better profit and cash flow in the second half of the year. The full year should still end with cash outflow, but it should be less than £100m.
I think these positive H2 signs look good for those bullish forecasts for the next few years.
Results
ASOS is due to post results for the first half on 10 May. We’ll also hear news of March and April trading. So it looks like that should be a key date.
If it boosts the outlook for the second half, might it even make the hedge funds think again? I don’t know.
In the end, though, I don’t much care what they think. I only care about the long-term for ASOS.
Right now, I can’t quite rate it a no-brainer. But even with the clear risks, I like what I see. And I have high hopes for first-half results.
