Will ASOS plc rise or fall after today’s update shows 30% growth in sales?

Is ASOS plc (LON:ASC) set to soar in 2017?

| 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.

Online fashion retailer ASOS (LSE: ASC) has released an upbeat trading statement for the four months to 31 December. Sales increased by 30% on a constant currency basis, with investment in pricing and proposition continuing to gain traction. All of its regions performed well and the business appears to be moving from strength to strength. But is it overvalued after its 70% gain in the last year?

A superb business model

In the UK, retail sales increased by ‘only’ 18% in what proved to be a more promotional market. This figure may seem high compared to a number of its retail peers that have struggled of late, but elsewhere in the world ASOS performed much better. For example, in the US its retail sales rose by 42%, while in the EU they were 38% higher. Both of these figures are on a constant currency basis. Therefore, when sterling’s weakness is included, they increase to 66% and 49% respectively.

In terms of customer engagement, ASOS continues to gain in popularity. For example, during the period it achieved a rise in active customers of 25%, an increase in the average basket of 2% and a 6% higher order frequency. It expects to record a rise in sales over the medium term of 20%-25% per annum. However, the reinvestment of foreign exchange and US duty benefits in financial year 2017 mean that sales of up to 30% are forecast in the current year.

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

Valuation

As mentioned, ASOS has soared by 70% in the last year and this puts it on a price-to-earnings (P/E) ratio of 69.5. While this may seem excessively high compared to a number of its retail sector peers, online shopping specialist Mysale (LSE: MYSL) has an even higher rating of 193. Both of these figures indicate that share price falls could be just around the corner, although in ASOS’s case that seems to be more likely.

A key reason for this is that the company’s earnings growth rate in the 2018 financial year is expected to be 28%. When combined with its P/E ratio this equates to a price-to-earnings growth (PEG) ratio of 2.5. This indicates that its shares offer little margin of safety and could fall, even if weaker sterling continues to provide a boost to its non-UK sales outlook. By contrast, Mysale is expected to record a rise in earnings of 101% next year. This puts it on a PEG ratio of 1.9 which, while still high, is more appealing than its sector peer’s valuation.

Of course, Mysale may have a sound strategy and bright prospects, but it remains relatively unattractive at a time when a number of other retail stocks have wide margins of safety. For either stock, even a minor downgrade to profitability could send their shares tumbling. Since 2017 is shaping up to be an uncertain year for the global economy, neither stock seems to be worth buying at the present time.

Should you buy ASOS now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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.

Peter Stephens has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended 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

Just released: our 3 top small-cap stocks to consider buying in April [PREMIUM PICKS]

Small-cap shares tend to be more volatile than larger companies, so we suggest investors should look to build up a…

Read more »

Investing Articles

Here’s why Tesla stock just rocketed 22.7%! Is it time to buy?

This writer wonders whether the news that sent Tesla stock soaring yesterday is a true gamechanger for the electric vehicle…

Read more »

Investing Articles

2 quality UK stocks to consider buying as share prices rally

With UK stocks moving higher, it might look as though investors with cash on hand have missed their chance. But…

Read more »

Investing Articles

How much £10,000 invested in Lloyds shares is forecast to be worth in 12 months

Harvey Jones is looking past today's stock market volatility to see where Lloyds shares may stand in a year's time.…

Read more »

Investing Articles

How Warren Buffett stays ahead of the stock market

When share prices fall, everyone suddenly wants to be like Warren Buffett. But what’s the secret to the Berkshire Hathaway…

Read more »

Investing Articles

Cheap UK dividend shares to consider buying right now

We're only just past the first quarter of 2025, but it already looks like the year could be another good…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

What the heck is going on with the Barclays share price now?

The Barclays share price surged 25% as the market open on 10 April. Once again, the volatility’s been driven by…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

What the devil’s going on with the HSBC share price?

The HSBC share price has actually been less volatile than some of its peers, despite its Chinese operations suggesting it’s…

Read more »