Half-year results for ASOS (LSE:ASC) came out last week. Unfortunately, it didn’t make for great reading, and the share price took a nose dive as a result. Over the past year, the fast-fashion retailer has been on a rollercoaster of highs and lows. This has been reflected in the movements in ASOS shares over this period. So if I’d invested a year ago in the company, here’s where I’d stand at the moment.
The numbers don’t lie
A year ago, ASOS was trading at 1,413p. Currently, it’s at 385p. This is quite a significant fall by any standards. In terms of a percentage, it has lost 72.8% in value. So my £1,000 would amount to £272.20.
The current price is the lowest level since 2010, which is really saying something. Some might argue that this makes it a good time to buy. But before getting into the future, let’s briefly recap reasons why an investment in ASOS a year ago would have returned an unrealised loss.
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Reasons for the fall
ASOS shares were still trading with a pandemic-induced premium at this time last year. During the pandemic, the company saw a jump in revenue, from £2.7bn in 2019 to £3.3bn in 2020 and £3.9bn in 2021.
To some extent, it was natural for some of these gains to unwind as we exited lockdowns and put the pandemic behind us.
Another reason for the fall has come in recent weeks. The release of the half-year results showed an 8% fall in revenue versus the same period last year. The gross profit margin shrunk by 7%, pushing the business to both an operating loss and a loss before tax.
Finally, the company has noted in previous updates that the current trading environment is challenging. This includes lower online traffic and sales then it had expected.
Thoughts going forward
The business is implementing a new strategy at the moment, known as “Driving Change”. The aim is to boost profitability in a variety of different ways.
For a long-term investor, this sounds good. Higher profitability helps to increase the value of a business, usually correlated to a higher share price. Excess profits can also be returned to shareholders via dividends.
From that angle, buying ASOS shares has potential. Yet I don’t think right now is the time to buy. The business is clearly struggling, even over the bumper holiday trading period. I don’t see any catalyst in coming months for a strong reversal in the tide.
With that in mind, I feel the share price could tumble even lower in coming months. When looking at the share price over the past week, it seems more like panic selling than anything else. Therefore, I feel investors should patiently wait on the side-lines for the time being, until things have calmed down. From there, this could be an attractive purchase for the long term.
