Blog
ASOS (LON:ASC) - business might be booming but the valuation looks crazy!
Posted 05/05/09
The pre close trading update from online fashion retailer ASOS for the year ended 31 March 2009 has received a large amount of press coverage. The numbers continue to impress it’s just the valuation that surely beggars belief.
The numbers were indeed excellent with sales for the 12 months to 31st March 2009 up 104% to £165m and profit before tax expected to be ahead, but only slightly, of market expectations.
As at 31st March 2009 the business had £13.6m of cash so presents a very different picture to those indebted retail peers.
At the operating level the business continues to perform admirably in the face of an extremely tough retail climate, begging the question, is it all too good to be true? Can a business aimed primarily at fashion forward 16-34 year olds really be bucking the retail trend to such an extent. For the time being the answer is clearly ‘Yes’, however, can this be maintained.
Even current trading remains buoyant with sales for the 4 weeks to 24th April 2009 up 80% year on year with younger fashion clearly proving more resilient than ‘oldie’ fashion – and I always thought the oldies had all the dosh!
Management reported that the ASOS website attracts over 5.3 million unique visitors a month and as at 31 March 2009 had 2.35 million registered users and 1.2 million active customers (defined as having shopped in the last 6 months). How big a barrier to entry is the website?
All these numbers are extremely impressive and without exception City analysts seem infatuated with this stock.
At the current share price of 407p the shares trade at over 31x March 2009 consensus estimates and over 23x March 2010 consensus estimates. This all sounds somewhat ludicrous for a relatively small business that does not actually possess any key brands of its own and is essentially simply a discount fashion retailer. At the current share price the market valuation of this AIM business is £295m resulting in the shares trading at 1.78x current year sales. This is a similar level to FTSE 250 quoted Burberrry Group a business with a market capitalisation of £1.7 billion that has sales of over £1bn which ‘owns’ one of the most iconic fashion brands in the world.
Larger Next Group, with its own less iconic label, and which also has a substantial online business trades at approximately 1x sales. Investors also receive a tasty c3.5% yield with Next whereas ASOS yields under 1%.
Much of the analyst talk has centred around the PEG (Price earnings relative to projected growth) relative to retail peers who have little hope of any growth in the current environment. However, PEG is all based on the assumption that the meteoric growth can continue. I question whether a business dependent on ‘fashion forward 16-34 year olds’ really can continue to outperform in the current climate.
We shall see!
This entry was posted 2 years, 9 months ago and was filed under ASOS.
