HomeStock MarketWhy did ASOS share price plummet this week?

Why did ASOS share price plummet this week?

ASOS (London Stock Exchange: ASC) Shareholders have a bad 2021.In the past 12 months, ASOS’s stock price has Crash 50%.The decline has spread to competitors boohoo It also fell by 42% during the same period.

The interim results at the end of September kicked off Boohoo’s decline, even though the online fashion retailer’s sales in the first half of the year hit a record high. But EBITDA fell by 5%, freight and logistics costs rose, and planned capital expenditures increased, making things shudder.

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A similar thing happened at ASOS, throughout the year result Cause damage. The same thing happened. The increase in freight and the cost of Brexit, coupled with other factors, reduced the company’s gross profit margin to 45.4%. The bottom line shows that pre-tax profits increased by 25%. But this is not enough to overcome concerns about the escalating supply chain issues, which is clearly reflected in the ASOS stock price.

Oh, there is another thing. ASOS chief executive Nick Beighton (Nick Beighton) will leave immediately and start looking for replacements. The company wants to reorganize the board of directors”Support the implementation of the next phase of the global growth strategy. “It’s not a problem in itself. But what about getting the CEO to leave without a succession plan in place? I know that we investors may be suspicious and cynical. But the way this happens doesn’t make it happen. Inspiring.

Is it time to buy now?

Anyway, what should I do? For a long time, I have been optimistic about the prospects of ASOS and Boohoo (I own Boohoo stock). I’m just not too keen on early company valuations. The soaring stock price gives people a feeling of “tomorrow will be traffic jam”, and there is not enough safety space.

But at today’s low price? Well, ASOS may not report the growth that shareholders have hoped for this year. Diluted earnings per share was flat at 125.5 pence (due to the increase in the number of outstanding shares). This makes ASOS stock’s price-to-earnings ratio only around 18 times its closing price on Wednesday. It is only a few years before ASOS reaches 80 times P/E ratio.

ASOS stock valuation

ASOS expects profit before tax in 2022 to fall, between 110 million pounds and 140 million pounds. All this is due to the already mentioned cost headwinds, plus capital expenditures and so on. The midpoint of this range will be down 35% from the 193 million pounds recorded in 2021. If earnings per share fell by the same percentage, we would see a forward P/E ratio of 28. Do I still think this is an attractive valuation? ?

Well, I expect ASOS’s stock price to remain weak in the next few months, possibly for the whole year. Growth investors may be tough masters. When a short-term reversal occurs in a stock like this, it may take a lot of time to get it back on track. But I do think that ASOS will recover and return to growth.

So yes, I will buy ASOS. In fact, when I buy next time, I might do this even if I already hold Boohoo.

Alan Oscroft Owns shares of Boohoo Group. Motley Fool UK recommended the ASOS and boohoo groups. The views expressed by the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we made in subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that taking into account a variety of different insights, We are better investors.

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