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Can the ASOS share price keep rising?

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Online fashion retailer ASOS (LSE: ASC) posted a great set of first-half results this morning that showed a significant increase in profits.

Here, I’m going to take a look at those H1 results. I’ll also discuss what I think they could mean for the ASOS share price going forward.

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ASOS: a huge rise in profits 

The H1 numbers from ASOS today are impressive, in my view. For the six months to 28 February, group revenue was up 25% at constant currency to £1,975.9m, while adjusted pre-tax profit leapt 275% to £112.9m. Diluted earnings per share (EPS) came in at 81.9p, up 198% year-on-year.

At the end of the period, the company had a net cash balance of £92m versus net debt of £164m at the same time last year.

Operational progress

Moving away from the headline figures, there were also plenty of other highlights in the interim results. For example, over the period, the company’s active customer base increased by 1.5m to 24.9m. That represents an increase of 6.4%. Meanwhile, in February, its websites attracted 248.6m visits during the month, up from 214.1m in February 2020. That represents growth of 16%.

In relation to the Topshop acquisition, ASOS advised the integration is progressing to plan and that costs are now expected to be around £10m and not £20m as previously advised. It also said it had seen “particularly strong growth” in US site visits following the announcement of the Topshop acquisition.

Additionally, ASOS said it launched its Truly Global Retail (TGR) system in March. It believes this new system will provide it with more accurate, relevant and timely information that will enable better decision-making, and greater agility.

Outlook

In terms of the outlook, ASOS said FY2021 expectations have increased in line with the first half performance.

Looking ahead, it said it’s well-positioned to capture demand for ‘event-led’ products when lifestyles normalise. However, the company retained its cautious view on the near-term consumer outlook due to Covid-19 uncertainty and “uncertain 20-something economic prospects.”

CEO Nick Beighton added: “Looking ahead, while we are mindful of the short-term uncertainty and potential economic consequences of the continuing pandemic, we are confident in the momentum we have built, and excited about delivering on our ambition of being the number one destination for fashion-loving 20-somethings.”

Can the ASOS share price climb higher? 

The ASOS share price has had a great run over the last year, rising about 170%. And looking at these strong H1 results, I think it has the potential to move even higher.

Currently, the consensus analyst earnings per share forecast for the year ending 31 August is 140.7p. Yet after delivering 81.9p in earnings in H1, I’d expect this figure to rise in the months ahead. This could boost the share price.

As for the valuation, I think it’s reasonable. Let’s say ASOS can generate EPS of 150p this financial year. That would put the stock on a forward-looking P/E ratio of about 38, which I think is fair given the company’s track record and future growth prospects.

Of course, I could be wrong about the ASOS share price. If shoppers return to the high street in droves after Covid-19 restrictions, ASOS sales and profits could take a hit. If this happens, the share price could fall.

Right now, however, I’m bullish on ASOS shares.

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Edward Sheldon owns 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.