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Can the ASOS share price continue to climb?

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The ASOS (LSE:ASC) share price has been on fire over the last 12 months, rising from 1,060p all the way to around 5,800p today. That’s nearly a 450% surge in a relatively short space of time.

What caused the share price to skyrocket? And should I be adding the company to my growth portfolio? 

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The rising ASOS share price

With high-street shops having to close their doors to the public in March last year, most retailers’ sales performance suffered considerably. However, ASOS is an online pureplay business and in the same way as most of its bricks-and-mortar competitors did.

In April 2020, its management team reported that the last three weeks of March 2020 saw a significant slowdown in online sales. However, despite this initial hiccup, the company went on to perform exceptionally well, resulting in a rising share price. The company released a series of positive trading updates throughout last year, showing a consistent increase in online sales worldwide. And by December, ASOS had exceeded market expectations, growing its overall revenue by 23% to over £1.36bn.

One major contributing factor to this impressive growth appears to stem from the addition of 2.8m new active customers compared during the period. What’s more, it recently added four new brands to its portfolio (Topshop, Topman, Miss Selfridge, and HIIT) by acquisition for £265m. Collectively, these new additions could add an additional 3.3m, active customers. Needless to say, if ASOS can seamlessly integrate these brands on its online platform, the sales performance in 2021 could be even more impressive.

Risks to consider

As the vaccine rollout continues, lockdown restrictions around the world have begun easing. Here in the UK, high street fashion shops are set to reopen their doors from next week. This may hurt online fashion sales, which may create short-term volatility in the ASOS share price.

Something else worth considering is the rising number of online-focused retailers. Over the years, e-commerce has been gaining popularity, and the pandemic has only accelerated its adoption. It already represents around 27% of total consumer spending today and the UK government has begun looking into adding a new sales tax for online businesses.

The ASOS share price has its risks

The bottom line

ASOS has invested in its own brands, purchased powerful external brands and added successful third-party brands via wholesale. It faces a lot of competition in the online fashion market. Yet it has proved itself to be quite resilient to competitive pressures. This is something I look for when searching when identifying investment opportunities. 

However, due to its rising share price, the stock does look rather expensive, trading at a P/E ratio of 47. If the company can continue to deliver its current growth rates, then I believe the ASOS share price can rise higher. But that’s a big ‘if’. Personally, I think there are far cheaper growth opportunities available to me today. I won’t be adding any ASOS shares to my portfolio, at least not at the current share price.

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Zaven Boyrazian does not own shares in ASOS. 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.