After a distinctly uncool year, AIM-listed global online fashion retailer ASOS (LSE: ASC) has fresh swagger after its final results showed sales leapt 26% to £2.4bn over the last year. Its stock rocketing 12% on the news.
ASOS has been described as the King of AIM, the largest stock on the index with a current market-cap of £4.65bn, almost big enough to plop it into the FTSE 100. However, it’s been overshadowed by fellow online fashionista Boohoo Group (LSE: BOO), which is up a mighty 563% over the last three years, against 63% share price growth at ASOS over the same period.
ASOS took a beating after warning in July that sales would be at the lower end of expectations. But that’s all forgotten after today’s glorious catwalk comeback. It also reported a 28% rise in pre-tax profits to £102m, while gross margins rose 140 basis points to 51.2%.
The group is also expanding internationally, with its US hub phase one operational, and its Euro hub in phase two “progressing well”, as CEO Nick Beighton pursues his goal of “building ASOS into the world’s number one destination for fashion loving twentysomethings”.
ASOS is making a profit while pursuing an expensive investment programme. It now has a cash balance of £43m, reflecting working capital and capex investment, and recently agreed a new £150m three-year facility.
Take AIM, fire
ASOS is another market darling that lost its charm, tempting contrarians, but investors are swooning once more today. Approach with caution because it is not cheap, trading at a forecast valuation of a whopping 52 times earnings. It’s justified this with strong earnings per share (EPS) growth of 43%, 25% and 28% in the last three years. But any sign that momentum is flagging will spook investors, as we saw in July.
EPS growth is forecast to slow in the year to 31 August 2019, but 19% is still impressive, while its revenues are forecast to rise another 25% or so, to hit nearly £3bn.
Tears for fears
AIM-traded Boohoo is similarly pricey, trading at 54.2 times earnings which again, leaves little margin for error. Both groups need to establish themselves as global fashion destinations to justify that kind of price. Domestic success alone will no longer cut it.
Boohoo posted successive EPS growth of 48%, 101% and 48% over the past three years but, again, there are signs of a slowdown. It’s forecast to grow ‘just’ 20% in the year to 28 February 2019, then 24% the year after. Once again, that remains impressive.
Boohoo, which own women’s fashion line PrettyLittleThing, now has a market-cap of £2.54bn, so perhaps it should be crowned the Queen of AIM. It recently reported a 22% rise in six monthly earnings to £24.7m, with revenue up 50% to £395.3m, and predicted revenue growth of between 38% and 43% in the year to 28 February. However, there’s still a chance that it could crash 50% by the end of the year.
Our AIM royals are both enjoying success at home and abroad and look tempting, provided you are willing to pay a premium price for budget fashion.
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harveyj has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended boohoo group. 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.