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.

But there’s one who does, a chap by the name of Mike Ashley. And if that name sounds familiar, yes, that’s the one — the Sports Direct owner. His Frasers Group has upped its stake and has now become the fourth-largest ASOS shareholder.

Mr Ashley is often contrarian in his investing approach. He does seem to like chasing down retailers that are struggling and investing in them heavily. Being the majority shareholder in Frasers with a 72% holding, he doesn’t have to worry about pleasing his shareholders in the short term, and he can keep his eye on long-term investing.

No short-term distractions

That’s something that hampers a lot of professional investors, who live by the success of each set of quarterly figures. But someone like Mike Ashley shares the ability to ignore short-term sentiment and focus on the years ahead, just like private investors can. We only have to satisfy ourselves.

Frasers has also just increased its stake in Hugo Boss. And interestingly, it’s taken a big chunk of put options too. A put option gives an investor the right to sell shares at a future date at a fixed price. I don’t know the specific details, but it does suggest Mike Ashley expects the price to be higher at some specified date.

It sounds like he’s bullish on the fashion retail business in general. Bearing in mind ace fund manager Sir John Templeton’s advice that “the time of maximum pessimism is the best time to buy,” I can’t help thinking he might be right.

Should we buy?

So, should I follow and buy ASOS? My instinct is to say yes, and put ASOS high on my list of candidates for my next investment. But I have to temper that with the fact that I’m already sitting on a significant loss from buying boohoo shares.

It’s hard to put a valuation on ASOS shares right now. The company slumped to a pre-tax loss in the year ended August 2022, of £31.9m. And the company said: “Within the UK, ASOS expects a decline in the apparel market over the next 12 months.”

The current year’s outlook is not great, with ASOS expecting negative free cash flow. It does, however, expect to return to cash generation in the second half.

Forecasts

Analysts currently expect a small profit, but I suspect they might be disappointed. They do see a strong profit rise for 2024 though, putting ASOS shares on a price-to-earnings (P/E) ratio of only around 10 by then.

That would be good, but the risk of relying on two-year-out forecasts is considerable. And the economic risks the retail sector could face in the next 12 months are scary.

Still, I’m drawn back to that maximum pessimism thing. If I didn’t already have a small (and diminishing) investment in boohoo, I might be tempted.

[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

ASOS

What it does: ASOS is an online fashion retail firm, comprising 17 different brands. It operates around the globe.

By Andrew Woods. My growth stock pick for October is ASOS (LSE:ASC). For the years ended August, between 2017 and 2021, earnings per share (EPS) rose from 77.2p to 128.9p. Over this period, the company had a compound annual EPS growth rate of 10.8%. I consider that to be consistent and strong.

However, ASOS has been operating in a challenging environment for the retail sector more generally. As the cost-of-living crisis has hit, customers have had less disposable income to spend on clothes. Inflation has also led to shrinking profit margins, as wages and costs increase. The share price reflects these problems, having fallen 82% in the past year.

Despite this, sales improved during the summer and the business expects full-year profits to be within the initial guidance range. Another indication that the company is in decent financial shape is its low levels of debt. This means it’s potentially well placed to work on expansion as we emerge from the pandemic.

Andrew Woods has no position in ASOS.

Kainos Group

What it does: Kainos is an IT support services business that helps companies, organisations and governments digitalise operations.

By Zaven Boyrazian. Kainos Group (LSE:KNOS) helps its clients digitalise operations and deploy Human Capital Management solutions through its partnership with Workday. The group serves the public and private sectors, with its most prominent collaboration being with the National Health Service.

Despite record double-digit organic sales growth, the stock has lost nearly a third of its market capitalisation in the last 12 months. It seems the recent drop in profit margins has spooked some investors. And given that the stock trades at a lofty premium of 47 times earnings, this volatility isn’t surprising.

The drop in profitability comes from the steady decline of pandemic tailwinds rather than internal issues. Meanwhile, demand for Kainos’ services continues to grow with a record level of bookings at £349.8m.

While it’s frustrating to see profitability wobble, the underlying business remains uncompromised. And with an impressive amount of potential, I believe the recent downward trajectory presents an attractive buying opportunity, even if the stock still looks expensive.

Zaven Boyrazian does not own shares in Kainos or Workday.

Halma

What it does: Halma is a collection of businesses focused on industrial safety, environmental monitoring, and life sciences.

By Stephen Wright. I’ve been buying shares in Halma (LSE:HLMA) over the last month. So I’m putting my money where my mouth is on this one. 

The reason I’ve started investing in this stock is that I think that it’s finally trading at an attractive price. The company has always looked great but expensive to me.

Halma has a straightforward business strategy. It attempts to acquire businesses and use the cash they generate to buy more businesses.

The company also has a decentralised corporate culture. In other words, it leaves individual businesses to get on with what they do well. 

Halma’s share price fell below £20 per share recently. At those prices, I think that it’s a terrific buy.

If the stock reaches that price again in October, I’ll be looking to increase my investment significantly. But I think Halma is a great company that I’m happy owning shares in.

Stephen Wright owns shares in Halma.

Spire Healthcare 

What it does: Spire Healthcare provides private healthcare services in the UK through 39 hospitals and eight clinics. 

By Royston Wild. The resilience of healthcare-related spending means stocks like Spire Healthcare (LSE: SPI) are popular picks during tough economic times like these.

Theoretically, Spire’s turnover might suffer as Britons start to feel the pinch. As times get tough, people could be tempted to wait that bit longer for treatment and get it for free on the NHS. 

But the size of NHS waiting lists today means that demand for private care continues to rise strongly. At Spire, revenues rose 7% in the six months to June as private revenues jumped almost 22% year on year.

A record 6.8m people were on NHS waiting lists in September. And the Institute for Fiscal Studies thinks the number will get worse before it gets better, possibly even hitting 10.8m people in 2024 before slowly falling. 

This explains why City analysts think Spire will report healthy earnings growth over the short-to-medium term. It’s expected to flip from losses of 7.1p per share in 2021 to earnings of 4.4p this year. And in 2023 earnings are tipped to double to 8.8p. 

Royston Wild owns shares in Spire Healthcare. 

Scottish Mortgage Investment Trust

What it does: Scottish Mortgage Investment Trust is one of the world’s biggest and most famous trust funds. The Baillie Gifford & Co fund invests globally and looks for strong businesses with above-average returns.

By John Choong. While Scottish Mortgage Investment Trust (LSE: SMT) has performed atrociously thus far this year, investors are told to expect a five-year return. As such, the current drop could pave way for a monumental recovery when the global economy eventually recovers.

The trust’s top holdings are mostly growth stocks, with the likes of Moderna and Tesla having plenty of upside to their earnings over the next decade, and could help boost the share price. Additionally, Scottish Mortgage has quite a healthy exposure to China. As the second largest economy in the world reopens from its Covid-19 lockdowns, Chinese equities are seeing steep rebounds, and Scottish Mortgage is expected to benefit from that to some extent.

Either way, with its share price down nearly 50% from its all-time high, this could be an opportune time for me to start a long-term position in a fund with historical success. That being said, investors should be wary that further lockdowns in China could prolong its road to recovery.

John Choong has no position in Scottish Mortgage Investment Trust.

Smithson Investment Trust

What it does: Smithson is a global investment trust run by Fundsmith. It invests in high-quality, small- and mid-cap growth stocks.

By Edward Sheldon, CFA. Smithson’s (LSE: SSON) share price has taken a big hit in 2022 as growth stocks have fallen out of favour and I think this has presented a buying opportunity. Currently, the investment trust is trading at a significant discount to its net asset value (NAV).

I like Smithson’s approach to investing. Like its big brother, Fundsmith Equity, it typically invests in companies that are highly profitable. Meanwhile, it avoids companies that are heavily leveraged, as well as those in industries that are rapidly changing. Names in the portfolio at the end of August included UK property website powerhouse Rightmove, medical technology company Masimo, and cybersecurity specialist Fortinet – all great companies.

It’s worth pointing out that the Smithson portfolio is quite concentrated. So, stock-specific risk is quite high. If a handful of stocks in the portfolio were to underperform, overall performance could be impacted significantly. I’m comfortable with this risk, however. I think Smithson is a good way to get exposure to smaller growth companies listed internationally.

Edward Sheldon has positions in Smithson Investment Trust, Rightmove, and Fundsmith Equity.

Hargreaves Lansdown

What it does: Hargreaves Lansdown is a United Kingdom-based digital wealth management service administering company.

By Paul Summers: The share price of Hargreaves Lansdown (LSE: HL) has been in awful form in 2022 and it isn’t hard to fathom why. 

At a time when most people are just trying to pay their energy bills, it was inevitable that revenue at the company would suffer. Combine this with a reduction in new business and assets under administration and the 35% fall, while severe, makes some sense. 

Even so, I do think this is shaping up to be an attractive contrarian play. A price-to-earnings (P/E) ratio of 17 isn’t screamingly cheap but it does seem a very enticing price for a company that generates some of the highest margins in the FTSE 100. Moreover, the desire of many to take more control over their finances will surely prove a decent growth driver for years to come. 

In the meantime, there’s a 4.7% forecast yield in the offing.

Paul Summers has no position in Hargreaves Lansdown

Share price volatility

The clothing seller’s share price has been historically volatile over the past five years, reaching highs of over £76 per share in 2018, but then falling to trade at under £11 per share in 2020, as with many FTSE stocks it plunged during the first few months of the pandemic.

But over the same five-year period, income has grown by £2bn! And it’s still increasing: revenue for the first nine months of the year is up 2% when compared to the prior year.

So why the peaks and troughs in the stock price?

Well, profits have been harder to come by. Most recently, the 2021 annual figures showed a profit before tax of £177m, and a net margin of 3%. The latest expectation for pre-tax profits in 2022 is at £20-£60m, having been revised from previous guidance of £110-140m. With costs across all industries spiralling, I think it’s fair to say it can expect a squeeze on profit margins too.

When it comes to dividends, ASOS’s policy is to reinvest profits into the business, and not distribute dividends, which is a strategy it doesn’t look set on changing any time soon.

Not such a good (out)look

There are plenty of external factors that could have an impact on the short- and medium-term performance of ASOS, not least the cost-of-living squeeze in the UK (its biggest market), but two recent issues really stand out.

The decision to “suspend sales” in Russia as a result of the war in Ukraine, of course, follows the trend of many blue-chip companies pulling their business out of the country this year. But historically ASOS has done approximately 4% of its business in Russia, and the decision cost the business a reported £14m. A scare for shareholders, but perhaps not customers.

However, the clothing giant could also be about to rile up its core customer base too! The Competition and Markets Authority is said to be looking into ASOS’s ‘Responsible edit’ range following reports that some clothes do not meet its green criteria. With its target demographic being young adults, if the investigation goes the wrong way, ASOS could lose much of its environmentally conscious customer base overnight.

The naked truth

There are clear risks with being an ASOS shareholder right now, and I’m expecting the share price to continue its volatility in the short term. But ASOS still occupies a strong market position in the online fashion market and I think it has clear growth potential over the long term. On balance, I’m still keen to add to my position on ASOS whilst it’s trading at its current price.

Book value is calculated by taking away the company’s liabilities from its assets and in theory, if a company stopped trading and sold all its assets, it would be left with its book value. When the book value is higher than the valuation, it’s a sign a stock may be undervalued. It’s not definitive, but it can be a very important metric. After the recent market sell-off, here are two bargain UK shares trading at less than book value I’d add to my portfolio.

Beaten-down travel stock

I’m a fan of National Express (LSE: NEX) and after its 35% fall over the past year, I feel it’s now too cheap for me to miss. At the end of 2021, the group had a book value of £1.45bn, whereas it currently has a market capitalisation of £1.1bn. That means the share price is trading at a 24% discount to its book value and signals that the shares are in deep value territory. 

There are several problems facing the transport operator today. Due to US wage inflation, the group expects its recovery in profitability to lag its revenue growth. Margins are expected to be only around 7% in 2022, lower than the 9% target. Longer term, if oil prices remain high, this could drive company’s costs even higher and would put more pressure on margins. 

However, I remain optimistic about the future for this UK share. For one, with the current cost-of-living crisis, it’s likely that consumers will want to switch to lower-cost transport. National Express could be one of the best options. 

Further, the group is confident it can deliver £1.25bn of free cash flow between 2022 and 2027. This cash will be partly reinvested into growing shareholder returns, and the dividend is expected to be reinstated after the FY2022 results. For these reasons, I’ll continue adding National Express shares to my portfolio.

Heavily-shorted UK stock

ASOS (LSE: ASC) is another company trading at less than book value. As of 28 February, the stock had a book value of £1.05bn, but a market cap of £900m. It means the shares currently trade at a discount of 14% to book value, implying bargain territory. 

The current macroeconomic environment has caused problems for the fast-fashion retailer, however. For example, it recently downgraded earnings expectations from £125m to between £20m and £60m. This saw the share price plunge around 30% on the day. It also explains why ASOS is one of the most shorted UK shares, just after Cineworld. This is another bearish sign.

Despite these worries, I’m still tempted to open a small position in ASOS. For example, as noted by Barclays, there are “green shoots in the US market”, where the company saw 21% year-on-year sales growth. With a customer base of 27m, I also feel like its long-term future is bright, especially when inflationary pressures start to die down. Therefore, I may use the group’s discount to its book value as a sign to buy. 

Bad news hurting

Even if the share price is potentially undervalued, there are clearly going to be catalysts for such a steep drop in the past year.

The latest financial results highlighted one of the major concerns from 2022 so far. The cost-of-living crisis is causing customers to be increasingly conscious about spending. The report noted that “net sales were impacted by a significant increase in returns rates in the UK and Europe”.

Spiraling costs from inflation is another point that’s hurting the business. Even though the gross margin of 44% is high, it has been declining, partly due to elevated freight costs. Ultimately, higher costs mean lower profit, unless revenue also increases at the same pace.

The company still expects to make a profit before tax of £20m-£60m for the full year. Yet this has been revised lower, causing some to be uneasy about holding the stock.

Potential value ahead

Given that ASOS is still profitable, I can accurately assess the value via the price-to-earnings ratio. Personally, any value below 10 gives me an indication that the P/E ratio is below average, and the shares could be undervalued.

ASOS currently has a P/E ratio of 6.8. One of the main competitors in this sector is boohoo, whose P/E ratio is 12.93 – almost double! From that perspective, I do think that ASOS shares could be worth buying. However, do any fundamental reasons support this view?

I do think that the business could outperform with its own-label brands. The cost-of-living crisis will likely impact high-end brands and more expensive third-party products listed by ASOS. But the cheaper own-label brands should see higher demand with cost-conscious customers. If the firm can market this appropriately then it could have a successful second half.

Overall thoughts on ASOS shares

I’ve got an optimistic view for ASOS for the rest of the year and beyond. There are clear risks that need to be appreciated, but I think most of this is reflected in the current share price. With it being down so heavily, I think further losses should be limited.

The share price might not aggressively jump back in the short run, but I think that the company is robust and has a good position in the sector. Therefore, I am keen to buy ASOS shares with some free cash at the moment.

The recent trading update 

The Q3 trading update was very poor across the board. For example, total group revenues for the quarter sank £4m year-on-year to £983m. This was below expectations and demonstrates that post-pandemic revenue growth has entirely stopped. 

Most worryingly, the company is also starting to feel the full impacts of inflationary pressures. Indeed, due to the rising cost of living, the return rates for ASOS products have soared. This is having very negative impacts on the firm’s profitability, and the group now expects adjusted profit before tax to total between £20m and £60m for the FY2022. This has fallen from previous expectations of around £125m, and far below the £193m recorded last year. 

Gross margins also declined in the third quarter, due to factors such as elevated freight costs and sustained levels of promotional activity. This is another reason why profitability is far lower than expected for the fiscal year. 

Why would I still buy this UK share?

Evidently, ASOS is severely struggling right now, and I cannot see any imminent improvements. Therefore, I am expecting significant amounts of volatility for the ASOS share price over the next year or so. 

But as a long-term buy, I am still confident in the company. It has a customer base of nearly 27m, and when inflationary pressures die down, I believe that ASOS will feel the benefits of this, and consumers will return en masse. 

In addition, I feel that there are international growth opportunities. For example, in the US, the group saw revenues increase 15% year-on-year in the third quarter. As international growth is an area where ASOS is targeting, it gives me hope for the future. 

From a valuation perspective, the ASOS share price also seems far too cheap. For instance, it has a price-to-sales ratio of under 0.25, which is lower than the majority of all other UK shares. Further, based off least year’s earnings, it trades at a price-to-earnings ratio of 6.5. Although profits will be far lower this year, I still believe that they will recover. This means that I feel the ASOS share price is trading at bargain levels right now. 

For this reason, I am very tempted to add some ASOS shares to my portfolio. I believe that, despite its blip this year, its long-term potential remains strong. As a long-term investor, this is what I look for. 

It’s all about results falling short of expectations, as the clothes seller faces fresh danger from soaring inflation and rising interest rates. Inflation is tipped to break 11% this year, and that will not help the retail business. But does that make ASOS a buy for investors now, in times of such pessimism?

“Be fearful when others are greedy, and greedy when others are fearful,” urged billionaire investor Warren Buffett. And that’s become something of a mantra for contrarian investors.

Buy ASOS shares now?

But Buffett does not mean we should just buy anything after a crash. And though ASOS shareholders appear to be fearful now, I really just take it to mean it’s a great time to investigate the fundamentals and decide whether it’s a no-brainer buy after such a huge 12-month fall.

The damage came on the back of first-quarter figures. The company said: “Gross sales accelerated, however net sales were impacted by a significant increase in returns rates in the UK and Europe towards the end of the period, reflecting inflationary pressures on consumers which has a disproportionate impact on profitability.”

That does highlight a weakness in this kind of business. It’s fine selling stuff, but online retailers have to cope with potentially serious levels of returns.

Growth halted, profits hit

Pulling out of Russia in March in response to the invasion of Ukraine didn’t help. But even after excluding Russia, constant currency revenue increased only 4% in the quarter. And rest-of-world (excluding UK, EU and US) sales still dropped 8%. With Russia, the fall reached 20%.

On a reported basis, total revenue declined by half a percent.

I don’t think that’s too bad for a fashion retail company in today’s global markets. But when it’s one in the early stages of going for worldwide expansion, it can hurt.

The company has slashed its pre-tax profit outlook for the full year. Having suggested £110m-£140m as recently as January, ASOS now expects only £20m-£60m. And that’s a very wide range.

Why I’m optimistic

This all sounds super gloomy, but I see room for optimism. Yes, revenue has effectively stagnated. But it had enjoyed a couple of years of pandemic-driven boosts. Now restrictions on shopping have ended, I can see it as partly a positive that revenue has held up.

Profitability is clearly suffering this year. But ASOS bounced back strongly from a bad year in 2019. If it can get back to 2021 earnings levels, the current share price would suggest a P/E ratio of only six.

I don’t see a quick return to previous profit levels. And I expect the 2022-23 year, which will be with us in less than three months, to start off tough.

So no, I wouldn’t rate ASOS as a no-brainer buy. But if things get back to normal, I think now could turn out to be a good time for investors to buy for long-term growth prospects.

ASOS stock touched a high of 7,700p in 2018, but has fallen by more than 80% over the last year. Such a massive fall suggests to me that this business might be a bargain buy for my portfolio. However, this situation carries some risk too.

ASOS has problems

Annual sales at ASOS have risen by 60% to £3.9bn, since the shares peaked in 2018. But as the old stock market saying goes, sales are vanity, but profit is sanity.

ASOS’s profit margins have collapsed over the last year. The company says this is due to “uncertain consumer purchasing behaviour”, rising costs, and higher return rates.

In today’s profit warning, the company said that adjusted pre-tax profit for the year is expected to be £20m-£60m. That’s less than half the company’s previous estimate of £110m-£140m, which was issued in January.

For me, this new forecast flags up some risks. Given that ASOS’s financial year ends in less than three months, there’s a very big range between £20m and £60m. This highlights the uncertainty the company is facing.

Management doesn’t know whether sales levels or return rates will improve over the summer. If they don’t, then the company could be forced to slash prices to get rid of unwanted stock.

I’m still interested

I still see some reasons to be optimistic about the outlook for ASOS. The company said that a lot of its current problems are due to temporary headwinds, as life returns to normal after the pandemic. I think that’s fair, at least to some extent.

People’s shopping habits are changing as they start buying more clothes for special events and holidays. There’s also been a big increase in labour and transport costs.

Another piece of good news is that ASOS now has a new chief executive, José Antonio Ramos Calamonte. The CEO role has been vacant since long-time boss Nick Beighton stepped down in October.

Mr Calamonte joined ASOS in January 2021 and is currently chief commercial officer. He’s an experienced fashion retail exec who has worked for companies including Inditex (which owns Zara) and Esprit.

ASOS shares could be cheap

Today’s trading update wasn’t all bad news. Sales for the three months to 31 May rose by 4% to £983m, driven by a 4% rise in the UK and a 15% rise in the USA.

These numbers tell me that ASOS has held on to most of the sales gains it made when online shopping boomed during the pandemic.

Another positive is that the company said it’s making good progress rejuvenating the Topshop brand, especially in the US.

At 900p, ASOS stock is trading on just seven times 2021 earnings. If Mr Calamonte can get inventory levels and logistics costs under control, then I think the shares could be cheap today.

However, I’m not going to buy ASOS shares for my portfolio. The company has an inconsistent track record and faces growing competition. I don’t have the confidence to invest. In my view, there are better opportunities elsewhere in today’s market.

Yet recently, the stock has rebounded a little and moved back above 1,450p. This begs the question, has the ASOS share price now bottomed?

Three reasons ASOS shares could rise from here

Looking at ASOS shares today, I think there’s certainly a chance they’ve bottomed.

One reason I say this is that the stock has fallen a long way. If we ignore the lows hit during the early stages of the Covid-19 pandemic (when markets were in total meltdown mode), the stock has declined to levels last seen in 2012.

That fall seems a little excessive to me. In FY2012, ASOS generated revenue of £553m. For FY2022, analysts expect the group to generate revenue of £4.2bn.

Another reason is that the stock now looks very cheap. After the recent share price fall, ASOS now has a market cap of just £1.4bn. That means its forward-looking price-to-sales ratio is just 0.33. Meanwhile, with analysts expecting the group to post earnings per share of 70.9p this year, the forward-looking price-to-earnings (P/E) ratio is under 20. That’s very low for this growth stock.

Additionally, operating conditions should start to get better for the group at some stage in the near future. Compared to last year and the year before, people are going to be socialising a lot more this year. This should result in higher demand for clothing. At the same time, supply chain and cost issues could start to improve. This would help profitability and boost earnings per share.

Three reasons the share price could keep falling

Having said all that, there’s also a chance the share price could keep falling.

One thing that’s worth highlighting here is that short interest is relatively high at 7.1%. This indicates that short sellers (hedge funds and other sophisticated investors) expect the stock to fall further. I don’t like to bet against the short sellers. Because more often than not they’re right. However, it’s worth pointing out that if ASOS was to post some good news, short sellers might rush to close their positions, pushing the share price up.

Another issue is that broker sentiment is poor. At the moment, analysts are downgrading their earnings estimates. For example, over the last month, the consensus earnings forecast for the year ending 31 August 2022 has fallen by 4.3p. Meanwhile, analysts at Jefferies recently cut their target price from 4,050p to 2,440p. This kind of broker activity could put pressure on the share price.

Finally, there is a bit of uncertainty here due to the economic environment. If consumers cut back their discretionary spending in the second half of 2022, it could have an impact on ASOS.

My view on ASOS

Ultimately, it’s hard to know if the ASOS share price has bottomed yet. In the near term, there are reasons to be bullish and also reasons to be bearish.

Having said that, I’d be comfortable buying ASOS shares for my portfolio today. I continue to believe the long-term growth story here is attractive, and at the current valuation, I see a lot of value on offer.