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As someone who has recently taken a huge mortgage on a new built (not TW unfortunately) here's my reasoning. You fix the mortgage as long as possible (5 years in my case) and you let inflation eat it away. Interest on the mortgage is 1.95% and I was expecting 3-4% inflation not 10% but I'll take that. If inflation stays this high (hopefully not for society's sake) for 10 years, that cuts my mortgage debt in half basically!
Ozzie, you said "Asos is debt free with cash on hand". Actually, they have £814.4M in debt and £406.7M in cash, i.e. they have a net debt of £407.7M. In other words about 50% of the debt is covered by cash. £459M of the debt is long term debt.
Please check your facts, next time before making such statements.
Here's a link to the numbers:
https://uk.finance.yahoo.com/quote/ASC.L/key-statistics?p=ASC.L
https://uk.finance.yahoo.com/quote/ASC.L/balance-sheet?p=ASC.L
My first reaction after seeing the price this morning was to laugh out loud! I guess I'm laughing at myself here!
Trying to think rationally there are lots of stay-at-home stocks that are down 70-80%, like Shopify, Zoom, Netflix, etc. So ASOS isn't alone in this. I think the share price was a bit exuberant during the Covid peak, then reality hit and I thought I'm getting a bargain when I bought in the 40s.
Now the market is pricing in basically single digit growth for the next 10 years which is ridiculous. Maybe for a year or two, sure, but then growth will be back to double digits for sure. And unlike some of the Covid growth stocks ASOS actually makes profits. I think it's an overreaction, and have topped up a bit, for the first time in a while.
Broker ratings pretty much follow the share price. If the share price goes up they increase their price targets, if it goes down, they lower them. Might be helpful for momentum investors like most institutional investors but for long term investors like me the ratings are pretty much useless!
My thoughts - property is mostly owned by people over 40, many of who vote tory, especially those at retirement age. Property owners are biased and want to see rising property prices (and it's too complicated for many people to realise that it's to the detriment of their children).
On the other hand first time buyers want to see lower property prices. However, those are mostly young and they don't vote at all or tend to vote Labor.
So basically the current government has no interest in fixing the broken housing market, as this would bring down house prices and negatively impact their voters. So I don't expect any changes before the next GE in 2024. After that we might get a Labor government especially, if party animal Boris is still in power. But even then I don't think Labor can fix the problem - after all they were in power quite a few years and did nothing about it.
The reason is IMO that the problem is hard to fix - it's cultural, political and economic. Us Brits are obsessed with houses, building more would require changes to planning permissions and either building out and/or building up. Again culturally we like houses with gardens not blocks of flats like in Paris and also the Green Belt is a bit of a holy cow. So I don't see how this can change.
And finally, the economic bit - there's been a lot of money printing that has inflated asset prices including housing. Interest rates are rising now so this problem might disappear but it also might persist. Either way not something that the government can easily change, as the national debt is huge and raising rates to normal levels will bankrupt the country.
Director buys will help the share price for couple of days but what management needs to do is to stop investing for the future and focus on the bottom line. In the current market growth at all cost is no longer rewarded, it actually gets punished. And there's a reason for it. If a severe recession comes later this year or next year you need to have the cash and FCF to survive. ASOS have 400m in cash and 800m in debt and TTM FCF is deeply negative. They won't be able to load up a lot more on debt during a recession. That's why the market is punishing the stock. This needs to be addressed promptly! Management needs to cut investments, cut costs, and steady the ship.
Finally some good news I suppose. Not over the moon about the new CEO. It sounds like he was plan B or plan C.
On the other hand it's a good policy promoting from within the company with a decent amount of turnover at the top as it creates a healthy culture among the employees. They know that, if they work hard and do well they can get all the way to the top.
https://www.proactiveinvestors.co.uk/companies/amp/news/983863
I'd argue that buyback make sense when the shares are cheap, below the fair value of the company. The way Warren Buffett does them. In this way they are more tax efficient way to return money to shareholders. Otherwise profits are taxed twice.
The problem however, is that most CEOs buyback shares when things are good, when the have extra cash, i.e. at the top and thus share prices are expensive. When they do that they destroy shareholder value. Instead they should be saving some cash for rainy days, paying down debt, etc. and then when the proverbial hits the fan, as it inevitable does, they can use their rainy day fund to buy back stock on the cheap.
So, IMO nothing wrong with the practice but the problem is with the way people use it, except for Buffett and few others.
There's a Times article about BOO saving Misguided. Glad it's not ASOS. Considering they are burning through cash and have a massive negative FCF the last thing they need is another brand to integrate and invest in.
One year ago that was fine but now with a recession likely round the corner that seems like a bad idea. If your cash flows are negative even before they fall off a cliff during a downturn, you're really risking a crash crunch and going out of business. Sure, BOO doesn't have debt and can load up, but that can only keep you going for a while.
I hope ASOS take a different route and start cutting expenses now and get those FCF numbers back into positive. Show me the money!
https://www.thetimes.co.uk/article/boohoo-prepares-to-rescue-stricken-rival-missguided-xthmbpv2d
If this makes anyone feel better, I'm down 70% here. My biggest paper loss ever. Holding hard though, I think this will come good in 2-3 years time.
On the other hand I dumped BOO. The Kamanis selling shares and management moving the goalposts on the share price so that they can collect their bonuses. Disgraceful!
There are lots of stocks on sale right now. I'd rather buy Shopify or something. Similar risk reward, stronger moat and at least Toby bought $10m worth of shares instead of selling or being worried about his bonus.
I feel there's some recency bias when it come to the type of recession we'll face, especially in the media. I see a lot of articles on a housing crash, etc. just because that's what caused the last recession (excluding Covid). I think that's very unlikely. IMO the next recession will be caused by the central banks tightening, trying to stop supply side inflation by limiting demand through higher rates.
The housing market is obviously very local and varies a lot from country to country. But nowadays most people are on long term mortgages, especially in the EU and the USA where they have 30 year fixed mortgages. The UK, AU and NZ have max 10 year fixed I think so a bit more exposed. However, I know my affordability was tested for 5% interest when I got my mortgage recently. So there are a lot of safeguards in place in the system after 2008.
So I do expect obviously a negative impact for HBs during a recession but it won't by anything as bad as 14 year ago. On that note TW has a super strong balance sheet and no debt. The biggest negative impact I can see here is a cut in the dividend. It's already at 10% so if the share price drops let's say another 20% during a recession and they're making less money they might cut it. It will still be a high dividend but on that new lower price. And obviously due to the cut the share price will fall even further. It'd be good to have some dry powder to take advantage of that if it happens.
I supposed it depends what you're trying to do. If you're looking at a trade, the number of shorts, TA, etc. are crucial. For me as a long term investor, I couldn't care less. If the price falls more, I'll top up some cheaper shares, if not I'll hold perhaps add a li'l bit. Makes no difference to me.
Not sure what Jot's investment strategy is, so can't speak for them. Long term I'm optimistic as well. Short term not so much haha
Congrats on the good returns, 4x in 10 years is nothing to scoff at! That's a market beating 15% annual return, which happens to be my target return.
Of course selling 6 months ago or 1 year ago would've been better but hindsight is always 20:20, as our cousins across the pond say!
I'd recommend reading Uber's CEO letter to shareholders. Dara basically said that investors don't want to see companies burning money even if that's for growth in the future. The market wants to see positive cash flows. Now! If you can't show that you get punished.
Both BOO and ASC have massive negative FCF TTM. That's probably a new reason they're getting punished, separate from supply chain issues, more returns, etc. Uber will be cutting investments and treat hiring as a privilege. IMO ASOS also need to cut costs and stop reinvesting so much until the storm passes. They also have a bit of debt now that makes investors worried. They should lower investments. cut some costs, and pay down some debt to get ready for a recession.