Is the ASOS share price on the rise?
Online fashion retailer ASOS is a familiar name to pretty much all UK fashionistas – but what about traders and investors? Does the ASOS share price make it one of the season’s hottest items?
Is ASOS one of the top fashion stocks?
ASOS is an online fashion retailer. Featuring a mixture of own-brand and branded items, ASOS has been a major player in the e-commerce world across the last decade. It appears its growth story is nowhere near finished.
Over the past five years, revenues have grown at a compound rate of 23.4%. Further growth is expected, particularly in the Covid economy which has so far favoured online retailers.
FY 2021 revenue growth is forecast at 23% according to city analysts. 2022 revenues will not expand at quite the same rate but are still estimated to rise by a comfortable 18%.
ASOS holds impressive business fundamentals backed up by a strong customer base and desirable products.
For instance, in its H1 2020/2021 results posted in April of this year, the company moved from a net debt of £163m to a cash surplus of £92m.
Such strong fundamentals are important to gauge when picking stocks and will also have an affect on the ASOS share price.
A look at the ASOS share price
At the start of the year, the ASOS share price had risen 23%. According to the one-year change indicator in the Markets.com Marketsx platform, ASOS shares are up 59% as of July 8th, 2021.
There is a couple of factors at play that are helping ASOS into one of if not the hottest fashion stocks on the FTSE Alternative Instrument Market (AIM). The AIM lists UK firms considered outside of the large caps – although ASOS’ current market capitalisation stands at a cool $5.3bn.
Firstly, there is the overall sales growth. According to its interim results reported in April, ASOS showed a 24% increase in UK sales, and a further 15% in international sales growth. The fashion retailer has also built up a considerable customer base. Its interim financial report states 24.9m customers shop at ASOS regularly – an increase of 1.5m against 2019/2020’s numbers.
Because it is only an e-commerce site, the pandemic has been greatly beneficial to ASOS, and thus to its share price. First half profits soared 275%. For many shoppers, they had no choice but to shop online. Many high street rivals, including Topshop/Topman owners the Arcadia Group and Gap have all taken massive hits too. Bricks and mortar operations have shut, which plays into ASOS’ hands.
Speaking of Arcadia Group, the ASOS share price was boosted in February when the online retailer acquired the Topshop, Topman, Miss Selfridge, and HIIT brands from Peter Green’s collapsed retail empire.
The acquisition is expected to drive “double-digit return on capital” for ASOS once fully integrated and promoted. ASOS spent £275m to acquire the brands in February 2021.
But any further ASOS share news must be tempered by re-opening trends. The UK high street is enjoying a post-lockdown renaissance. ASOS has no physical presence, although it may be able to turn Topshop’s flagship Oxford Street store in London into its first physical location.
Even son, ASOS is confident it can keep its momentum growing and believes online fast fashion retail will remain consumers’ preferred choice. But the re-opening of British high streets suggests competition can return to pre-pandemic levels.
This may still be unlikely, as physical retail was declining prior to the Covid-19-induced shuttering of shops in 2020, but it is worth watching if you’re planning on investing or trading ASOS.
There is also a caveat to share price performance. While the ASOS share price was up at the start of the year, and is up significantly year-on-year, the price has fallen away from its 2021 highs as of July.
Shares are currently trading at around £49.15 – below the February high of £59.18.
Part of the reason for this is what we slightly touched on above: economic uncertainty. While ASOS has been a pandemic growth success, we don’t know what the future might hold. Its core consumer base – fashion-loving 20-somethings – are facing tough times economically, even as lockdown eases.
ASOS has subsequently kept its forecasts for the full 2021 year in line with normal expectations, rather than another bumper first half.
There is also competition in the online space. BooHoo, also an AIM fashion stock, has seen its share price rise 3.25% month-on-month between June and July 2021. According to its Q1 2021 results, BooHoo has grown its customer base by 18% to 18 million – closing the gap on ASOS. Revenues also increased by 41%.
Risks of trading ASOS & fashion stocks
Research into fashion stock fundamentals, as well as the more technical aspects of stock price action, is very important. Read our guide on how to pick stocks for more information.
When considering the ASOS share price, also consider that investing and trading carries inherent risk of capital loss. Only invest or trade if you can afford any potential losses. Always do your due diligence before investing or trading.