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Is the ASOS share price too cheap to ignore?

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Since hitting an all-time high of around £75.50 in February 2018, investor sentiment towards the ASOS (LSE: ASC) share price has plunged. Indeed, towards the end of March, the stock hit a level not seen since 2011. 

The ASOS share price has since recovered some of its losses, although it’s still trading at half the level it reached in February 2018. As such, the stock looks cheap, and now could be a great time to buy this global fashion retailer. 

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ASOS share price value

The firm was one of the first public pure-play online retailers. When the ASOS share price went public in October 2001, online shopping was still a distant dream for many. Over the past 20 years, the market has ballooned, and the coronavirus crisis has only accelerated this trend. 

According to the latest forecasts, the online fashion industry’s growth will triple this year to account for 23% of European sales. Previously, analysts were forecasting 2024 for this target. The share of the market is now projected to hit 37% by 2030. 

This is excellent news for the likes of ASOS and its peers. The company’s UK peer, Boohoo, has been leading the charge. The group recently reported a 45% increase in first-quarter revenue. Other companies in the sector have reported growth rates in the mid-teens. 

These numbers have helped support the ASOS share price. And it looks as if the sector is only just getting started. 

Cheap shares 

Unfortunately, ASOS hasn’t been able to escape the coronavirus crisis unscathed. The company has had to write down the value of several million pounds worth of stock. Still, it looks as if overall top-line growth will offset these losses. 

Therefore, now could be an excellent time to buy the ASOS share price. As noted above, the stock is trading around 50% below the level it did at the beginning of 2018. This could mean it offers a margin of safety as it doesn’t look as if investors have priced in the firm’s recent good fortune. 

Furthermore, the ASOS share price looks cheap, compared to rival Boohoo. The former is trading at a price-to-sales (P/S) ratio of just 1.2, compared to 4.1 for the latter. While Boohoo has reported faster growth this year, this significant value disconnect doesn’t appear to be warranted. This seems to support the conclusion the ASOS share price currently offers a margin of safety. 

So, overall, while the rest of the retail world seems to be struggling in the coronavirus crisis, the ASOS share price appears to offer good value. It also appears to be a great way to play the booming online retail market, which is only expected to expand further in the next few years.

The stock could generate attractive total returns for long-term investors in the years ahead. Especially for those who are prepared to look past its short-term problems and focus on its future potential. 

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That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.

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Rupert Hargreaves owns no share 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.

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