Down 88% in 5 years, will the ASOS share price ever recover?

It’s been an ugly few years for the ASOS share price, but with the economy showing signs of strength again, is a recovery finally on the cards?

| More on:
Frustrated young white male looking disconsolate while sat on his sofa holding a beer

Image source: Getty Images

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.

Once an e-commerce darling, ASOS (LSE: ASC) has suffered a fairly dramatic fall from grace in recent years. The ASOS share price has plummeted a staggering 88% over the past five years, leaving many investors shell-shocked. So is the company now in real trouble, or are there signs of a recovery underway? I’ve taken a closer look.

The decline

The company’s descent can be attributed to a combination of factors, both internal and external. The Covid-19 pandemic disrupted global supply chains, leading to inventory shortages and fulfilment challenges. Rising costs and inflationary pressures further compounded the company’s woes, squeezing margins and undermining profitability.

Compounding these external pressures were internal missteps. International expansion proved overly ambitious, resulting in operational inefficiencies and ballooning costs. The company’s failure to adapt to changing consumer preferences and the competitive landscape further eroded its market position.

The numbers

The financial performance of the business reflects the depth of its struggles. In its latest earnings report, the company posted a loss of £248.1m for the previous year. Moreover, its net profit margin stands at a dismal -7.72%, a far cry from the lofty heights it once enjoyed.

However, there are glimmers of hope. Revenue for the last year reached £3.21bn , indicating that the brand still heavily resonates. Additionally, the company’s impressive gross margin of 43.44% suggests that its core business model remains viable.

Analysts also expect earnings to grow a remarkable 80.58% annually for the next five years. This projection, though ambitious, suggests that if the business can regain its footing and return to profitability, there could be a major recovery for the share price.

Valuation

Despite its woes, valuation metrics suggest there could be an opportunity here. The company’s price-to-sales (P/S) ratio stands at a mere 0.1 times, indicating that investors are currently paying a fraction of its revenue in market capitalisation. This meagre valuation could imply that the market has already priced in the majority of struggles and future growth potential.

However, it’s important to note that the company carries a high level of debt, with a debt-to-equity ratio of 109.9%. This significant amount of leverage adds an element of risk and could hamper the company’s ability to invest in its turnaround efforts. While interest rates are high, and the economy is still in an uncertain place, this could be a dangerous looking balance sheet.

The future

Any potential recovery is fraught with challenges. Competition is intense from established retailers and upstart e-commerce players, all vying for a share of the lucrative online fashion market.

Nevertheless, there are plenty of opportunities. Strong brand recognition and a loyal customer base provide a solid foundation for a potential resurgence. By streamlining operations, optimising inventory management, and embracing innovative technologies, the company could regain its competitive edge.

Moreover, the growth of e-commerce and the increasing popularity of online shopping, particularly among younger demographics, bodes well for ASOS’s long-term prospects.

Overall

The journey ahead is undoubtedly arduous, but the potential rewards in the ASOS share price could be substantial.

However, an investment at this juncture requires a very healthy appetite for risk and a long-term perspective. For me, I’d want to see more of the company’s turnaround plan, how it plans to manage debt levels, and beat the competition before taking the plunge. I’ll be keeping clear for 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.

Gordon Best has no position in any of the shares mentioned. 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.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

3 UK stocks I reckon could benefit from the upcoming general election

As the general election hurtles towards us, this Fool wonders which UK stocks could benefit, and focuses on three picks…

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

At 11%, this dividend share pays the biggest yield in the FTSE 100

When a dividend share offers a big yield, we need to be cautious of the risks. But I reckon this…

Read more »

British Isles on nautical map
Investing Articles

I reckon Hiscox shares could be one of the best bargains on the FTSE

I've been investing in FTSE companies for years, but after a major decline I've not seen a company with as…

Read more »

Grey Number 4 Stencil on Yellow Concrete Wall
Investing Articles

4 reasons I’d still buy National Grid shares in a heartbeat despite the recent wobble!

As National Grid shares plunged on the news of a right issue, I’m not flinching, and reckon it's a top…

Read more »

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

After gaining 45% in 12 months, is the Amazon share price now overvalued?

Our author thinks the Amazon share price might be too high. While the long-term future of the business looks bright,…

Read more »

Investing Articles

2 hot dividend stocks I’d buy and hold for 10 years

Our writer reckons these two dividend stocks could help her bag juicy dividends for years to come and explains why.

Read more »

British Pennies on a Pound Note
Investing Articles

2 dividend-paying penny shares I’d happily own

These two penny shares have caught our writer's eye for a combination of income prospects now and business growth potential…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

This FTSE 250 share looks like a bargain to me!

This FTSE 250 share has seen its price tumble due to chaotic local economic conditions in a key market. But…

Read more »