From todays investing reviews4 Jul 2023 07:31
Are ASOS shares the bargain they seem to be?
Judging by the upbeat trading update, it’s certainly encouraging to see ASOS’ turnaround plan beginning to take shape. Provided its Driving Change initiative continues to bear fruit, one could argue that the current ASOS share price presents a bargain. After all, ASOS shares are currently trading with a forward P/S ratio of just 0.1.
While ASOS shares could head to the moon, potential investors should also proceed with an element of caution. For one, there’s still plenty of work that needs to be done to downsize its inventory levels. What’s more, management still needs to deal with other factors such as the platform’s declining active customer base, which fell by another 800k in Q3.
Nonetheless, this could be the first step of a remarkable comeback, as ASOS shares have seen their short interest fall from a high of 9.5% last October to just 1.2% today. This should help the ASOS share price navigate through some short-term volatility. Plus, the group’s recent £80m equity raise and new £275m long-term loan facility should provide some resilience and flexibility for its financials in the near term.
That said, the group could still get taken over by Mike Ashley’s Fraser Group, especially after the conglomerate raised its stake in recent weeks. Although this could end up benefitting new investors, those who bought in when the ASOS share price was much higher could fail to see the full turnaround materialise, thereby cutting short the comeback story. It doesn’t help that founder Nicholas Robertson recently sold c.£1m worth of ASOS shares either.
Having said that, it would be foolish to rule out a staggering rise for the ASOS share price in the months to come, as the enterprise’s headwinds begin to dissipate. Falling inflation should ease pressures on households which should encourage more spending — and that’s been evident in the latest results from peers NEXT, ABF, and H&M. As such, ASOS shares may be worth taking a risk on with a small position given their tremendous upside potential
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