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A dirt-cheap growth stock I WON’T be buying for my Stocks and Shares ISA

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These are tempting times for dip buyers. The heavy share market sell-off of recent weeks leaves plenty of quality shares looking massively overvalued. For ISA investors, too, there is the upcoming deadline to max out the annual allowance, which has raised the sense of urgency.

Don’t be hasty, though. There are plenty of top-tier shares going for next to nothing at current prices. But in the rush to grab a bargain there’s plenty of investors piling in and picking up some proper duds. Many have bought shares that could leave a huge financial hole in their investment portfolios.

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One such share I’m not tempted to buy today is ASOS (LSE: ASC). You may think that online-only clothes retailers like this might thrive at the expense of their bricks and mortar rivals. The lockdown on all non-essential shopping by government should lead to an explosion of e-commerce, right?

Conditions toughen

Well, not quite. Consumers are understandably tightening the pursestrings on all discretionary items. There are widespread fears over Covid-19’s impact on the broader economy and more specifically, falling wages and mass job losses. As a result, internet sales of discretionary items like those offered by ASOS aren’t benefitting from plummeting footfall on high streets and in shopping malls.

It’s a phenomenon that research house GlobalData predicted. It says that clothing and footwear sales will topple 20.6% year on year in 2020. That’s a vast departure from the 0.6% rise it had previously estimated.

To put this into context, the predicted £11.1bn hit that GlobalData expects for the fashion retail sector “is equivalent to the combined clothing sales of the three market leaders Primark, Marks & Spencer, and Next.”

ASOS also has little to hang their hopes on, with social interactions falling and quarantine measures being stepped up. It comments that “although the online channel will remain accessible to shoppers, we still expect to see a sharp decline in sales here as no amount of spare time at home to browse online will compensate for the lack of events to wear new clothes for.”

Supply strains

Falling demand isn’t the only thing that ASOS needs to worry about, either. The accelerating infection rate across many parts of Europe and here in the UK threatens to smack its supply chain and hamper its ability to meet orders as well.

It’s a potential hazard that has already tripped up its mid-tier rival Next. On Thursday, the FTSE 100 heavyweight said that after listening to staff concerns, it would shutter its online, warehousing, and distribution operations. As a consequence, it has put a halt to all new orders. It’s quite likely that other retailers will also be forced into such measures.

There’s a huge danger, then, that City forecasts suggesting ASOS’s earnings will leap 62% in fiscal 2020 will fall flat. I don’t care about the forward price-to-earnings growth ratio of 0.4 times. This is a share whose rising risk profile more that outweighs its relative cheapness. I, for one, plan to keep avoiding it.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. 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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