The Motley Fool

This thing could put a rocket under the ASOS share price

Image source: Getty Images.

The ASOS (LSE: ASC) share price endured a stomach-churning crash in the spring when Covid-19 hit the markets.

The self-described online retailer for fashion-loving 20-somethings around the world saw its stock plunge by just over 70% from 11 February until mid-April. And that counts as one of the furthest drops of all during the stock market crash.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

The buoyant ASOS share price

Maybe that’s unsurprising when you consider the company has enjoyed a rich valuation for many years. Indeed, investors’ expectations of outperformance have been high regarding ASOS. So, when the world changed, many probably switched to risk-off mode and dumped everything, especially their expensive stocks. Indeed, in the early days of the pandemic, we all had little idea of how things would develop.

But, in early April, it began to emerge that shoppers were switching from high street shopping to online channels during the lockdowns. And ASOS started shooting back up. At today’s 3,510p, the share is now within a whisker of the level it was in February, before the plunge.

However, to reverse the 70% plunge, ASOS needed to climb by about 230%. That sounds a lot, but it’s only restoring the stock back to where it started. And that move seems rational to me, because earnings have been rising.

Indeed, the extra revenue being generated by shoppers migrating online is dropping to the bottom line for ASOS. The firm has also been cutting costs. And City analysts have pencilled in an impressive three-figure percentage hike in earnings for the next trading year to August 2021. And rising earnings could be the thing that puts a rocket under the share price.

Strong year-on-year profit growth

In a trading update released on 15 July, chief executive Nick Beighton said ASOS is “on track to deliver strong year-on-year profit growth and to return to positive free cash flow for the full year.” However, he also said the directors are cautious about the ongoing effects of Covid-19 on the business.

But, so far, the pandemic is boosting earnings. And earnings tend to be a big driver of share prices. Because of this, I reckon there’s potential for sentiment to drive the stock back up to its previous highs of 2018 above 7,000p.

One possible scenario is that consumers will continue to enjoy shopping with ASOS, even when coronavirus is a distant memory. I’ve heard plenty of arguments that the pandemic is hastening the switch from the high street to online channels. It’s possible that higher profits could endure for ASOS, marking a step up in the growth story.

However, analysts at Morgan Stanley urged caution last week. Their survey data suggests consumers will likely go back to in-store shopping when social distancing is relaxed. And ASOS could see a decline in revenue down the road if a vaccine becomes available.

Right now, that’s speculation. Meanwhile, the company’s forward-looking earnings multiple for the trading year to August 2021 sits just above 50. The stakes are high!

A Top Share with Enormous Growth Potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business (yes, despite the pandemic!).

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks!

And here’s the really exciting part…

While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.

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.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Growth Share… free of charge!

Kevin Godbold has no position in any share mentioned. The Motley Fool UK 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.