The markets had an amazing November. I’ve expressed confidence that I think December could be a good month for investors as well. Many years – though not all – we see a Santa Rally. With this in mind, I’ve been running my eye over some UK growth shares. I think I’ve found one I might snap up this month.
Ramping up for Christmas and ready for a Santa Rally
My top pick of the growth shares, is clothing e-commerce outfit ASOS (LSE: ASC). I’ve never previously invested in the shares – as they are expensive when you look at a measure like the price to earnings (P/E) ratio.
However, the company is performing well financially, boosted in part no doubt by lockdown and the demise of high street rivals. The fast-fashion retailer recently revealed that it had more than quadrupled its pre-tax profits over its latest financial year.
One downside is that the founder has just sold a significant amount of shares. He does though retain 3.34% of the company. That’s not insignificant compared to some AIM listed company founders. His interests are still in my opinion aligned with those of shareholders. Just to a lesser extent than they were previously.
ASOS seems to have come through a period where operationally it wasn’t doing so well. It now has room to keep improving. If it does that it follows that the share price could increase as well.
I think overall, investors will expect ASOS to do well in the current environment and will push up demand for the shares. This in turn ought to boost the share price. That makes it a top pick for a growth share for me in December.
Why ASOS over Boohoo as a growth share to buy?
Boohoo (LSE: BOO) has had to do a lot to take the sting out of accusations around its use of factories in Leicester that were underpaying workers. This has included directors buying shares, appointing non-executive directors, and asking a retired judge to oversee change at the retailer.
Boohoo is more acquisitive than ASOS, which increases risk in my eyes. To date most acquisitions seem to have paid off, but it’s often the case it takes time for the wheels to come off acquisitive companies.
I don’t like the £324m paid for the remaining stake in PrettyLittleThing because it comes with a catch that makes me uncomfortable. The acquired company was owned by the Boohoo co-founders’ son. In itself, this isn’t necessarily sinister, but it does mean you have to put a lot of trust in the leaders of Boohoo to make the best use of shareholder funds. That’s a big ask. Especially so in light of the Leicester factory allegations. I’d prefer to invest my money in companies with better oversight.
Overall, I think ASOS will perform better over the coming months and I think it’s a top UK growth share. It would do especially well I think if there’s a Santa Rally this month.
Andy Ross owns no share mentioned. The Motley Fool UK has recommended ASOS and 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.