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The ASOS share price is up 75% in 2 days! Here’s what I’d do

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The ASOS (LSE: ASC) share price jumped more than 30% this morning, after it announced a successful £247m share placing to help it weather the Covid-19 pandemic. That was on top of a 34% jump yesterday as it reported a positive set of results.

Investors who used the stock market crash to buy bargain FTSE stocks like this one will be celebrating today. However, I’d think carefully before buying into the ASOS share price now.

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The online fashion retailer should be making hay right now, as a bored nation sits at home with time on its hands, scrolling away.

Is this FTSE stock a crashing buy?

The problem is that the coronavirus crisis and stock market crash is hitting people right in the pocket, and many will be cutting back on discretionary purchases like new clothes. Now isn’t the time to splash the cash and flaunt yourself. Even if the police would let you.

Management thrilled investors by reporting record interim pre-tax profits on Tuesday, up 653% to £30.1m, with revenue rising 21% to £1.6bn. The group also cut costs and saw a healthy increase in its active customer base, hence the surge in the ASOS share price.

International sales rose an impressive 22% to £974.3m. Foreign markets now contribute more than the UK, where sales climbed 20% to £577.1m. I’m pleased to see it expanding successfully overseas, which should provide scale and diversification. No wonder the ASOS share price is flying right now.

ASOS share price has struggled

These six-month results ended on 29 February, before the Covid-19 lockdown, so the next set will not be so pretty. You knew that anyway. Group sales fell by up to a range of 20% to 25% in the three most recent trading weeks.

The ASOS share price was struggling long before we had even heard of the coronavirus. Last autumn, the so-called King of AIM crashed by 40% after a significant deterioration in trading, which it blamed on economic uncertainty and weaker consumer confidence. We didn’t know the meaning of those phrases in those far-off days!

If it wasn’t for the coronavirus lockdown, instead of crashing, the ASOS share price could be on a high right now.

Crashing FTSE stock opportunity

Today’s share placing success has boosted confidence in its ability to survive. However, broker Liberum questioned whether ASOS has raised enough cash and also criticised it for “poor” disclosure, given the risks right now.

I’m afraid I wouldn’t recommend buying in to the ASOS share price after the recent surge. Fast fashion still faces plenty of challenges, as we don’t know how long the lockdown will last, or the long-term impact on people’s shopping habits.

Also, we are going to see the mother of all clearance sales once Covid-19 abates, which could press down on retail prices and hit cash generation. The long-term recovery in the ASOS share price could prove agonisingly slow.

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Harvey Jones 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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