The ASOS (LSE: ASC) share price has crashed 80% in the past 12 months. Clearly the majority of investors don’t see ASOS as a buy right now.
But there’s one who does, a chap by the name of Mike Ashley. And if that name sounds familiar, yes, that’s the one — the Sports Direct owner. His Frasers Group has upped its stake and has now become the fourth-largest ASOS shareholder.
Mr Ashley is often contrarian in his investing approach. He does seem to like chasing down retailers that are struggling and investing in them heavily. Being the majority shareholder in Frasers with a 72% holding, he doesn’t have to worry about pleasing his shareholders in the short term, and he can keep his eye on long-term investing.
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No short-term distractions
That’s something that hampers a lot of professional investors, who live by the success of each set of quarterly figures. But someone like Mike Ashley shares the ability to ignore short-term sentiment and focus on the years ahead, just like private investors can. We only have to satisfy ourselves.
Frasers has also just increased its stake in Hugo Boss. And interestingly, it’s taken a big chunk of put options too. A put option gives an investor the right to sell shares at a future date at a fixed price. I don’t know the specific details, but it does suggest Mike Ashley expects the price to be higher at some specified date.
It sounds like he’s bullish on the fashion retail business in general. Bearing in mind ace fund manager Sir John Templeton’s advice that “the time of maximum pessimism is the best time to buy,” I can’t help thinking he might be right.
Should we buy?
So, should I follow and buy ASOS? My instinct is to say yes, and put ASOS high on my list of candidates for my next investment. But I have to temper that with the fact that I’m already sitting on a significant loss from buying boohoo shares.
It’s hard to put a valuation on ASOS shares right now. The company slumped to a pre-tax loss in the year ended August 2022, of £31.9m. And the company said: “Within the UK, ASOS expects a decline in the apparel market over the next 12 months.”
The current year’s outlook is not great, with ASOS expecting negative free cash flow. It does, however, expect to return to cash generation in the second half.
Forecasts
Analysts currently expect a small profit, but I suspect they might be disappointed. They do see a strong profit rise for 2024 though, putting ASOS shares on a price-to-earnings (P/E) ratio of only around 10 by then.
That would be good, but the risk of relying on two-year-out forecasts is considerable. And the economic risks the retail sector could face in the next 12 months are scary.
Still, I’m drawn back to that maximum pessimism thing. If I didn’t already have a small (and diminishing) investment in boohoo, I might be tempted.
