2014 has been a dismal year for investors in N Brown (LSE: BWNG) and ASOS (LSE: ASC), with the share prices of the two online fashion retail companies falling by 43% and 66% respectively.
However, it seems as though things are getting worse, since N Brown released a profit warning today which stated that mild weather is likely to cause profits to be down on last year?s levels. As a result, shares in the company are down 13% on the day at the time…
However, it seems as though things are getting worse, since N Brown released a profit warning today which stated that mild weather is likely to cause profits to be down on last year’s levels. As a result, shares in the company are down 13% on the day at the time of writing.
Despite this, personally I’d still rather buy N Brown than ASOS. Here’s why.
Of course, ASOS also recently released a profit warning. Its problems, though, are slightly different to those of N Brown. Rather than the weather affecting sales, its expansion abroad is taking longer and costing much more than it anticipated. As a result, it expects earnings to be around 19% lower in the current year and to be flat next year.
This is worse than N Brown’s comparable growth forecasts over the same period. It is expected to post a fall in earnings of around 8% in the current year, before growing the bottom line by around 11% next year. Therefore, while the current year is disappointing for N Brown, its problems seem to be due to unseasonable weather that is a hazard of being a retailer, rather than a logistical issue that could prove harder to fix.
Although it has better growth prospects over the next two years, N Brown trades on a much more appealing price to earnings (P/E) ratio than ASOS. Of course, that’s not a particularly challenging feat, since ASOS has a staggering P/E of 50.8. N Brown’s P/E of around 12 looks far more appealing – especially when its better growth prospects are taken into account.
I think N Brown also offers a greater diversity than ASOS. While ASOS is focused solely on teens and twentysomethings, N Brown has a range of websites that cater to a number of niches, including plus sizes and underwear. As a result, it should be able to command more brand loyalty, since its niches are underserved in comparison to the teen/twentysomething marketplace and, furthermore, customers in N Brown’s niches being arguably less fickle than their ASOS counterparts.
So, even though it has had a profit warning, N Brown seems to have decent growth prospects and a lower valuation, while it could also command more customer loyalty over the long run.
Despite this, N Brown hasn't been named The Motley Fool's Top Growth Stock Of 2014-15.
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Peter Stephens has no position in any shares mentioned. The Motley Fool UK owns shares of ASOS. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.