The ASOS (LSE: ASC) and Boohoo (LSE: BOO) share prices have both been stock market darlings.
Unfortunately this year, the companies have fallen from grace. Year-to-date, shares in Boohoo are off 46%, while ASOS has dropped 51%.
Following this performance, I’m attracted to both companies. These are some of the most efficient and fastest-growing retailers in the UK. They’ve revolutionised the world of online fashion and lead an e-commerce revolution across the industry.
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However, if I had to buy just one of these equities, one stands out to me as being much stronger than the other.
ASOS share price headwinds
ASOS was a first-mover in the UK in the digital fashion space. Investors could buy shares in the company for around 20p just after the dot-com crash when internet retail was still in its infancy.
Since then, the organisation has expanded around the world and redefined the e-commerce fashion market. But the group has never really been able to make the most of its first-mover advantage.
Profit and revenue growth has been sluggish compared to its rival Boohoo, which trades at the fast-fashion end of the market. And following the company’s recent profit warning, it doesn’t look as if this will change.
ASOS’ revenues are up 140% over the past five years, but Boohoo’s have surged 520%. Granted, the latter is at an earlier stage of growth. Its revenues are still half the size of those of its larger peer.
Boohoo share price growth
Boohoo has been able to succeed where ASOS has failed by investing significant sums in marketing collaborations (Boohoo’s just announced its biggest-ever fashion collaboration with mega celebrity Megan Fox). This has helped the company capitalise on social media platforms. And this growth has, in turn, provide additional capital for acquisitions.
That said, the Boohoo share price has come under pressure recently following accusations of poor working conditions at the company’s factories in the UK. These accusations have thrown a cloud over the group and dented its reputation.
By comparison, ASOS has no such reputational issues, although it has always struggled with razor-thin profit margins. These thin margins mean the group has almost no room for error. Even a slight downturn in revenues or increase in spending can significantly impact the bottom line.
In its 2020 financial year, ASOS’ net profit margin came in at 3.4% compared to 5.2% for Boohoo.
Which is the better buy?
So both the ASOS share price and Boohoo share price have their benefits and drawbacks.
However, ethical considerations aside, I’d buy Boohoo for my portfolio. I think the company has a better track record of growth and, as noted above, still has plenty of room to grow. Its fatter profit margins also provide additional capital for the group to chase growth.
Still, due to the ethical considerations outlined above, I realise the group may not be suitable for all investors.
