Which Online Retailer Deserves Your Cash: ASOS plc Or boohoo.com plc?

ASOS plc (LON: ASC) and boohoo.com PLC (LON: BOO) are two very different businesses.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

ASOS (LSE: ASC) issued an upbeat summer trading statement today, although the company’s shares have hardly reacted to the good news. 

Group revenue expanded 21% year-on-year during the four months to June 30. UK sales expanded by 27% while ASOS’s international sales, which account for 59% of total group business, grew 16%. 

For the first ten months of ASOS’s financial year, revenue increased by 17% compared to the prior year. What’s more, the group’s retail gross margin has widened by 2.80% year-on-year, as tighter inventory control and strong full price sales have helped offset promotional activity.

Should you invest £1,000 in ASOS right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if ASOS made the list?

See the 6 stocks

A great relief

For ASOS’s shareholders, today’s update is a great relief. It marks an end to a string of profit warnings and a costly warehouse fire, all of which have taken place over the past 12 months.

And based on today’s figures, ASOS’s management believe that the majority of the company’s troubles are now behind it. Management expects the group to report full-year sales growth at the higher end of its guided 15-20% growth range. 

Not good enough 

Still, while today’s upbeat trading statement is a welcome relief for ASOS’s investors, the group isn’t out of the woods just yet.

ASOS’s growth continues to contract, and for a company that’s trading at a forward P/E of 91, I’d argue ASOS’s sales growth is disappointing. 

Indeed, group earnings per share are set to fall by 4% this year, before rebounding by 26% during 2016. Based on these numbers, ASOS is trading at a 2016 P/E of 71. 

In comparison, boohoo.com (LSE: BOO), ASOS’s closest listed comparable peer, is currently trading at a forward P/E of 25.5. Further, Boohoo’s earnings per share are on track to expand by 43% this year, and City analysts believe group sales are predicted to grow by around 26%. 

That said, according to boohoo’s own trading update for the three months ended May 31, during the first quarter of year group sales had expanded by 37% at constant exchange rates. The number of active customers shopping with the group increased by 32% during the period to 3.3m.

The number of active shoppers using ASOS’s services only grew by 11% year-on-year during the first ten months of the company’s financial year, although this was from a much larger base of 9.8m customers. 

The better investment

It’s clear to me that on several metrics, boohoo is the better investment. Also, the company looks cheap compared to the growth that it is expected to generate. 

boohoo is currently trading at a PEG ratio of 0.6 based on current growth forecasts. A PEG ratio of less than one indicates growth at a reasonable price. As ASOS’s earnings are expected to fall this year, it’s not possible to calculate the group’s forward PEG ratio. However, based on ASOS’s projected growth for 2016, the company is trading at 2016 PEG of 2016. 

And, as a bonus, boohoo has cash and equivalents worth around 5p per share or around 19% of its current share price. ASOS has a cash-rich balance sheet, but cash only amounts to approximately 80p per share. 

So overall, boohoo looks to me to be the better investment based on the company’s sales growth and attractive valuation. 

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended shares of boohoo.com. The Motley Fool UK owns shares of ASOS. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

 

More on Investing Articles

Investing Articles

Prediction: 12 months from now, £5,000 invested in Tesla stock could be worth…

Tesla stock has endured a miserable year so far, falling by 29%. Muhammad Cheema takes a look at how it…

Read more »

Investing Articles

See what £10,000 invested in Tesla shares at their mid-December peak is worth today 

As the world absorbs the full scale of Donald Trump's tariffs, Tesla shares are reeling. Investors who bought the stock…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Dividend Shares

2 ‘safe’ LSE dividend stocks to consider as global markets sell off

As global markets experience high levels of volatility due to economic uncertainty, investors are piling into these ‘safe-haven’ dividend stocks.

Read more »

Investing Articles

US stock market rout: an unmissable opportunity for investors?

His tech-heavy portfolio has been smashed by Trump’s tariffs. However, Dr James Fox believes there could be some opportunities in…

Read more »

Investing Articles

After a 13% ‘Trump tariff’ fall, is the Barclays share price too cheap to miss?

Does the Barclays share price fall mean we should all panic and run screaming from the stock market? Nah, of…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 investment trusts to consider for a Stocks and Shares ISA

These two investment trusts have a different focus -- but our writer sees both as worth considering, one more for…

Read more »

Investing Articles

Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”

Our writer investigates why a major broker remains optimistic about a FTSE 250 stock that was once the most shorted…

Read more »

Investing Articles

2 things to remember when stock markets are turbulent

US trade policy has rattled the stock markets in New York, London and elsewhere. Our writer outlines a couple of…

Read more »