ASOS (LSE:ASC) shares exploded higher as the pandemic took off. The online fast fashion firm was perfectly placed to cater to consumer demand over 2020 and early 2021. In fact, an investor who purchased during the crash at the start of 2020 would have over tripled their money within a year. Yet the story has been very different over the past year.
Tumbling stock
If I’d missed out on the pandemic boom period and jumped in during 2022, I wouldn’t be in a great position. After hitting highs close to 6,000p in March 2021, the stock has been falling ever since. Assuming that I bought exactly a year ago at 625p, I’d currently be holding an unrealised loss.
With the current share price of 367p, I’d be down 41.2%. My £1,000 initial capital would be worth £588. Over the same period, the FTSE All Share Index is up 2.78%. So I can see clearly that ASOS has underperformed the wider market.
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In terms of peer performance, it doesn’t look great. Boohoo shares are down 25%, with THG stock up 27%. It shows that the sector’s very volatile, with ASOS stock at the wrong end of the scale.
Problems at the company
There have been several reasons for the decline of the stock in the recent past. Supply chain problems have negatively impacted the company. Shipping delays and higher transportation costs due to inflation have been a headache.
Add into the mix changing consumer tastes and weaker demand. This was a factor spoken about in the annual report released at the start of this month. It was a factor that led to the business to fall to a loss before tax of £296.7m. This was considerably worse to the loss of £31.9m from 2022.
Poor financial results also put pressure on the share price. The stock falls to reflect the lower value of the company, as well as factoring in the outlook for the near term.
Reasons for hope
Even though there’s a lot of doom and gloom around ASOS, there are reasons for hope. Mike Ashley from Frasers Group has been steadily buying up the stock in recent months. He’s a smart investor who knows the retail space well. Clearly, he believes in the firm and think it’s a cheap buy right now.
The company is also increasing the marketing budget for 2024 by £30m. This push could be a key factor in winning new customers and driving higher revenue.
Finally, there’s a clear focus on clearing out old stock and operating on a more efficient basis. Only time will tell if this translates to a reversal back to a net profit, but it certainly shows the business is making an effort to deal with the problems.
On that basis, even if I did buy ASOS shares a year ago, I wouldn’t be panic-selling right now.
