Is now the time to jump on the bandwagon and buy ASOS shares?

Despite falling 44% since November 2022, ASOS shares remain popular with Some larger investors. I wonder what’s the appeal of the loss-making retailer.

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Seven investors own 77% of ASOS (LSE:ASC) shares. Of these, all but one has bought more stock in 2023.

The most active has been Frasers Group, which now owns 19.5% of the company. But the biggest shareholder remains Aktieselskabet, a Danish company led by fashion retail billionaire Anders Holch Povlsen.

Povlsen owns Bestseller which, a bit like Frasers, comprises a collection of fashion brands, the most famous of which is probably Jack & Jones.

I wonder if the time has come for me to join the big league and buy a slice of ASOS?

ShareholderNo. of sharesOwnership %Date of last trade
Aktieselskabet32,309,74927.129.8.23
Frasers Group23,280,66819.51.11.23
Camelot Capital Partners16,722,38114.024.8.23
T Rowe Price International5,984,6315.020.1.23
Citadel GP5,397,9264.531.5.23
Schroders4,211,5703.5None since 28.10.22
Goldman Sachs4,140,1353.53.11.23
Others27,189,79022.9
Information from ASOS at 28 Oct 2022, updated from stock market announcements to 8 Nov 2023

A bit of a mystery

I don’t know the intentions of these investors.

There’s been plenty of speculation that Frasers wants to buy the group. The market cap of ASOS is currently around £450m. If Mike Ashley’s company was to buy the remaining 80.5%, it’s going to cost at least £360m plus a healthy additional premium on top.

Its most recent balance sheet (at 30 April) shows it had cash of £333m. And there was another £303m of headroom in its bank facility. More likely, any deal would involve swapping shares in ASOS for Frasers, minimising any cash outlay.

However, due to the size of their shareholdings, Povlsen and Camelot Capital Partners, a Californian hedge fund, are likely to have a big influence on the future ownership of the online retailer.

Seeing into the future

Despite the popularity of its shares with these investors, the company has struggled of late.

On 1 November, it released its results for the period from 1 September 2022 to 3 September 2023. Year on year, these showed a drop in revenue of 10%, a decline in margin from 43.6% to 41.1%, and an increase in the pre-tax loss from £31.9m to £296.7m.

A bit of a disaster? Well, dig a little deeper and I think there’s some evidence that the worst might be over.

Removing the exceptional costs associated with a stock write-off (£133.2m), reducing its footprint (£60.7m) and one-off consultancy fees due to restructuring (£31m), presents a different picture.

With these adjustments, the gross margin improved to 44.2%. And the loss before tax was £70.3m.

The company expects to be cash positive in 2024. It also forecasts revenue growth in 2025. And it hopes to get back to its pre-pandemic EBITDA (earnings before interest, tax, depreciation and amortisation) margin of 6% (2023: 3.5%).

For comparison, achieving the same margin in 2023 would have improved the company’s result by £212m.

Big doubts

But not everyone’s convinced ASOS has turned or will turn things around.

It’s the most shorted UK stock. Eight different investors have borrowed 6.76% of the company’s shares in anticipation of the price falling.

However, if I had some spare cash, I’d be tempted to buy some shares.

Although a recovery is far from guaranteed, I think the future emphasis on profitability at the expense of sales is the right one. But if any one of its large shareholders decided to sell their stock, I reckon there would be a big fall in the share price.

Over the next few months I’m going to be looking at the company’s stock market announcements with interest, to see who’s buying and selling.

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.

James Beard has positions in Frasers Group Plc. The Motley Fool UK has no position in any of the shares mentioned. 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.

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