What can we say about the ASOS (LSE: ASC) share price, except maybe “eek”?
It soared three times in the past 10 years, but crashed every time. And the most recent slump was a big one. Even the boost from Covid has now gone.
In fact, those who bought ASOS shares five years ago are on a loss of close to 90%. But 2023 is off to a good start, with a 45% gain so far. And I think we might just see things turn round this year.
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Boom and bust
The Covid years saw sales and profits climb. I mean, what could boost online shopping more than the closing of the high street? In 2021, ASOS earned a nice pre-tax profit of £177m.
But then the wheels came off. The economic hit from the Covid years swept over us like a wave. And the war in Ukraine added further woes on top of the human pain.
Supply chains were squeezed, costs climbed, the high street opened up, and competition was back on. And ASOS slumped to a £32m loss in 2022.
Demand is strong
But even in that truly bad year, I see one thing that makes me take heart. Revenue at ASOS still rose. In fact, it reached an all-time high of £3.94bn.
I know that’s not much use if you can’t turn it into a profit. But it does at least show that the demand for ASOS fashion is still there. And if it can hold up for the next year or two, I think it might help push the firm back to growth.
That is far from certain, though, as board room shuffles show. New CEO José Antonio Ramos Calamonte took over in mid-2022. And his goal was to renew the ASOS appeal to younger buyers.
It’s very early days, but those full-year sales give me hope that his job is going in the right direction.
Good value ahead?
The City seems to think so, too. Well, we see a big loss on the cards for 2023. And until the year plays out, there must be a good chance that the ASOS share price will stay low.
But forecasts show a return to profit in 2024, with growth in 2025. If that comes off, ASOS would still be some way short of 2021 profit. But we’d be looking at a price-to-earnings (P/E) ratio of under 10.
In late 2019, when we had a P/E of well over 100, if you told me I’d see such a low valuation just a few years later? Well, I would not have believed it.
Will I buy?
There’s bags of risk. Online competition is hotting up, with more and more high street names in on the act. And we even see top brands selling direct these days. So things could still be tough for ASOS for some time.
If I do buy ASOS shares, it will only be with a small chunk of my ISA cash. But I do think 2023 might be the year to go for it.
