If you’re looking for the biggest market casualties of 2022 so far, look no further than online fashion retailer ASOS (LSE: ASC) shares. Today, I’m reflecting on just how bad the damage has been and what chinks of light there are for holders… like me.
Big loser
As I type, ASOS shares have crashed by 74% year to date. So a £1,000 investment in January would now be worth around £260 (taking into account the costs involved in buying the stock). This brutal result is made even worse by the fact it doesn’t pay dividends.
All told, it’s the sort of performance that’s probably enough to put off some would-be investors.
I’m not about to accuse the market of being wrong here. Like many of its peers, ASOS has seen profits evaporate as a result of shoppers tightening their belts. Even those still buying are returning more items than before. Add in increased costs and a stretched balance sheet and I think the price crash can be justified.
I did buy ASOS shares!
Thankfully, I didn’t buy ASOS shares at the beginning of the year. However, I did dip my toe in a couple of months ago. Do I regret it? Yes and no.
On the one hand, I’d far rather not be underwater. No one likes to wake up to a big splurge of red in their portfolio, even if that’s been the norm in 2022. As much as I don’t attempt to ‘time the market’, my timing could clearly have been a lot better.
On the flip side, I’m satisfied that I invested according to my risk profile by only forking out a very small amount and ensuring I was already adequately diversified elsewhere.
My plan was to add to my holding as the months passed and business (hopefully) bounced back. Is this too optimistic?
The only way is up?
Well, ASOS shares are up 12% over the last five trading days. There are likely a few reasons for this, but none are related to trading.
First, there was news that serial bargain hunter Mike Ashley had now accumulated a 5.1% stake in the business via Frasers Group (where he remains the biggest shareholder). Might a full takeover be in the pipeline, or is the move just about developing “relationships and partnerships with other retailers” as the latter claimed? Regardless, it’s got people wondering if ASOS shares are now good value.
A second potential reason for the sudden jump in the price is that some short sellers (those betting that the price will fall) have been hurrying to close their positions. That said, ASOS is still the second most shorted stock in the UK.
Third, there is a sense that new CEO José Antonio Ramos Calamonte understands that the company has overreached itself. His plans (made public earlier in October) involve reducing costs, improving inventory management, stabilising its financial position and “refreshing the culture“. The market seems to approve of this strategy.
Patience required
These are tough times at ASOS and I don’t expect trading to improve anytime soon. Nevertheless, any slight cooling of inflation could see sentiment return to the retail sector as fear is replaced by greed. Perhaps we really have seen the bottom.
I’m content to hold for now.