ASOS Plc (AIM:ASC), a internet and direct marketing retail company based in United Kingdom, received a lot of attention from a substantial price increase on the AIM in the over the last few months. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Today I will analyse the most recent data on ASOS’s outlook and valuation to see if the opportunity still exists. View our latest analysis for ASOS
Is ASOS still cheap?
ASOS appears to be overvalued according to my relative valuation model. I’ve used the price-to-equity ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 88.36x is currently well-above the industry average of 68.99x, meaning that it is trading at a more expensive price relative to its peers. But, is there another opportunity to buy low in the future? Since ASOS’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
Can we expect growth from ASOS?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 95.03% over the next couple of years, the future seems bright for ASOS. It looks like higher cash flows is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? It seems like the market has well and truly priced in ASOS’s positive outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe ASOS should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on ASOS for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for ASOS, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.