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Is ASOS Stock Trading At A Huge Discount?

Blog updated on May 23, 2023.

ASOS's share price has dropped 70% in the past year. They've recently released their interim results, causing shares to become "bargain" priced. However, this might be a risky buy because of ASOS's financial problems.

ASOS has recently shown a decrease in numbers across the board. The company's shares were already being shorted on the London Stock Exchange. As a result, the share prices took a further hit of 15%. This wasn't a surprise given the situation.

ASOS has grown a lot during the pandemic. The company wants to be profitable in a good way. But, it will take longer than planned. ASOS is doing something called 'Driving Change' to help. This will hurt ASOS now also. People are not happy with ASOS shares because of this.

ASOS wants to lower its inventory by making its products more efficient and getting them on the market faster. But, this will cause them to have more losses at first. They need to sell over £100m worth of products at lower prices before they can fully start the new plan.

The store had a loss of £21m in H1 from selling off old stock. They set aside £107m for future stock clear outs. ASOS saw a drop of 7% in gross margins and 5.1% in EBIT margins as a result.

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ASOS Stock Price Soars

ASOS Shares' Future: Where To?

ASOS shares are cheap now, even though the numbers are low. The P/S and P/B ratios are at 0.1 and 0.6, which means you would get a good deal if you bought them. Looking at the group's history, the stock is worth buying, considering that it has great potential.

Analysts rate ASOS as a 'hold'. The average price target is £6. ASOS shares could increase by 35%.

I think it might not be a wise decision to invest in this stock hastily because I see it as a potential trap in terms of value. The reason being that a stock's P/S ratio usually indicates its future profits. Yet, if sales aren't resulting in earnings (which is the case here), one needs to be cautious in considering the multiple.

ASOS is facing financial difficulties, which is concerning. Their net debt is £432m and their debt-to-equity ratio is 93%. They have negative free cash flow of -£263m and need more liquidity to turn things around.

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The business may need more money soon. They might choose to raise it through equity instead of debt. This could make the shareholders have less value and the company look less valuable. So, even though ASOS shares could go up, they might actually go down if they get more money this way.

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This blog section is not personal advice. Don't treat it as such. Share tips are not recommendations.

Investments can go down or up, affecting their value and any income. You might not get your full investment back. Past performance isn't a great predictor of future performance. It's best to consider long-term investments that fit your financial situation and risk tolerance.

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Did you think about moving your pension? Transferring your pension could be a good move. It gives you more control over your retirement savings. You can take advantage of lower fees and better investment options. It's important to seek professional advice before making any decisions.

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John analyzes stocks and shares with keen attention to detail. He gives precise and thorough insights, covering various sectors from big tech to housebuilders and supermarkets. His work has been published on leading investment sites like The Motley Fool UK and Seeking Alpha.

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