One of Warren Buffett’s famous investing sayings is “be fearful when others are greedy and greedy only when others are fearful”. Or, in other words, sell when others are buying and buy when they’re selling.
But we might expect Foolish investors to know that, and looking at what Fools have been buying recently might well provide us with some ideas for good investments.
So, in this series of articles, we’re going to look at what customers of The Motley Fool ShareDealing Service have been buying in the past week or so, and what might have made them decide to do so.
Shock profit warning
Shares in Asos (LSE: ASC) (NASDAQOTH: ASOMF.US) plunged 30% in early June after revealing a slowdown in international sales growth. When a buying opportunity presents itself, it’s one thing to talk the talk, and quite another to walk the walk.
Fools walked the walk last week: buying Asos on the back of continued share price weakness.* The shares trade at 69 times next year’s expected earnings which, by any conventional measure, is still expensive.
But in 2008 Asos shares were on a P/E of 29. That’s still not what you’d consider cheap, but long-time shareholders can be glad of a 700% profit between then and now, and count their lucky stars.
Dotcom bust?
Asos is hugely popular among fashion conscious shoppers in their 20s and has celebrity fans from Rihanna to Michelle Obama. Sales in the UK are growing rapidly, improving 43% in the three months to May, and Asos now has has 8.6m customers.
The strength of sterling has stymied international sales growth, however, by making clothes too expensive in markets such as Australia and Russia. Resultant from this is that Asos is carrying too much unwanted stock (which needs to be sold at a discount).
Analysts have revised down their profit forecasts from £61m to £45m, while Nick Robertson, the Asos chief executive, cautioned that even once the stock overhang is lifted, profit margins may only recover from 4.5% to 5.5%, down from an initial 6.5%.
The turnaround
Asos shares have lost half their value this year to date and the firm is increasing capital expenditure to boost annual sales capacity. Prices need to come down in international markets, where Asos prices off the UK stock file — hence the susceptibility to currency headwinds.
With a market cap of £2.4bn Asos is one of the UK’s most valuable retailers. The shares are sub £30 and I’ll leave you to decide whether the stellar growth story is over or not.
