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Are ASOS shares down and out for good?


Shares in online clothing firm ASOS [LON:ASC] are down over 47% in the last six months, and nearly 80% over the 12 month picture. The company has also just seen its stock relegated from the FTSE 250 index. This has led to further selling as fund managers and ETFs offload the stock.

For investors who have been steadily losing money on ASOS, the key question is going to be whether the company can reinvent itself sufficiently to turn things around. For those sniffing around the market for a value play, does ASOS now represent good value for money based on its fundamentals, or are we going to see further selling in 2H? Bear in mind the company has just posted a first half loss of £87m, which does not make for good reading.

Some investors seem to be thinking now is the time to buy in: for example, Frasers Group acquired a 2.3% stake in the company last month.

ASOS holding its own against peers

ASOS said in late May that it was tapping its shareholders for £75m as it made efforts to repair its balance sheet. The issue is being underwritten by three of its investors, among them Danish billionaire Anders Povlsen. ASOS also said it would be launching a £5m retail offer of ordinary shares via PrimaryBid.

If you look at the fundamentals of ASOS, it still seems to be holding its own against peers in the fashion sector. This is not a lucrative time for fashion retailers in general in the UK. ASOS is underperforming on balance sheet and cash flow, but its last income statement looks respectable for the sector.

Compared with a close peer like Boohoo [LON:BOO], ASOS looks more robust, apart from Boohoo’s fantastic relative income metric. But there are really no stocks in ASOS’ vicinity in the market of comparable size which are rated a buy at the moment.

ASOS does get marked down heavily in a number of areas, and problematic issues surround its equity/intangibles and book value momentum, both of which underperform sector averages. Revenue efficiency is looking good, and if improved could have a positive impact on the share price. In this area, the company does start to compare well with peers.

ASOS was one of the lockdown darlings of the investment community. As an online fashion retailer, it made money when shops were closed and consumers found they had more disposable cash at their fingertips. Since things have returned to normal, however, the company has started making a loss.

Can management turn things around?

Management now seems to be heavily focused on turning this ship around, with efforts being made to repair the balance sheet. We note that it is changing the CFO function, with Sean Glithero taking over from Katy Mecklenburgh. Marketing spend is also being heavily reined in, we hear.

Glithero’s appointment could be significant: he is an online fashion industry veteran with a 28 year career and has held senior finance roles at the likes of Auto Trader Group [LON:AUTO] and MatchesFashion.

In the final analysis, the FTSE 250 relegation is not good news for ASOS. We think, however, much of the bad news here stems from macro factors hitting online fashion retail in the UK, and the high street more generally. Some of ASOS’ closest competitors are in even worse shape. It may be worth giving Glithero some time to work his magic, and we think ASOS could well be back in the FTSE 250 in the future.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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