Lockdown is taking its toll on many businesses, with all indications from the government suggesting it will not be coming to an end any time soon. Looking at the ASOS (LSE: ASC) share price recently then, one could be forgiven for wondering what is going on.
The stock has almost doubled in April thanks mainly to news that the online retailer successfully raised more than £240m through a share placement. ASOS also added between £60m and £80m to its revolving finance facility, and applied for the Bank of England’s Covid-19 corporate finance facility.
Also helping its shares were the half-year results, which generally showed some strong performance, though ASOS did say that sales have fallen by about a quarter in recent weeks. This now raises the question, is all this enough to survive lockdown?
Surviving is thriving
It’s a strange state of affairs, but with lockdown causing so many troubles for businesses, at this stage just surviving may be enough. Things should, hopefully, go back to normal eventually, and one would hope when they do most businesses that survived will carry on trading as they did before.
With this in mind, the financing and share issuance may just be enough to help ASOS survive till better times come again. I think it is far from certain though. I have said it before, but clothes retailers look set to me to have a lot of potential for trouble in the lockdown. People do not buy new clothes to stay indoors.
Unlike some clothing stores that offer more mainstay products, like children’s clothes, ASOS is very much a fashion retailer. Its customers, predominately young and fashionable, buy its products to look good. The financing may bolster the ASOS share price for a time, but its troubles may be far from over.
The ASOS share price long term
At this stage of course, we just don’t know. The longevity of lockdown will be key, and though people may not buy new clothes to sit around the house, with everyone saving money by not going out it’s not unreasonable to expect some people to stock up on clothes.
Even before Covid-19 the company had its troubles though. Towards the end of last year a significant drop in trading saw the ASOS share price plummet 40%, and even with these latest gains it still stands at about half what it was 12 months ago.
There have been some signs that it may have be on the road to recovery, but lockdown and coronavirus troubles could have stalled these efforts.
Personally I wouldn’t risk investing in ASOS at the moment – the uncertainty is just too great. I certainly think it is well placed to survive the lockdown troubles – if they don’t last too long, of course. For me though, I think the ASOS share price has a lot of potential to drop further before things start to pick up for the online fashion retailer.
Karl 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.