Star AIM share ASOS defies retail gloom
17th October 2018 13:35
by Richard Hunter from interactive investor
The largest company on AIM is flying the flag for a beleaguered retail sector. Richard Hunter, head of markets at interactive investor, explains why the shares are up as much as 15%.
Within the beleaguered retail sector, ASOS is a breath of fresh air. These full-year numbers further underline its strength.
With pre-tax profits up 28%, propelled by rises in revenues in the UK and internationally of 23% and 24% respectively, the substantial recent investment which the company has made seems perfectly justifiable. Gross margin has also improved, earnings per share is markedly higher and management’s outlook is extremely positive.Â
If the UK retail sector is supposedly in the doldrums, ASOS has not got the memo. It has hailed an "outstanding" year, as both growth and market share have improved. Meanwhile, European and US sales have also shown strong progress as the company’s ambitions remain undiluted.
Source: TradingView (*) Â Â Â Past performance is not a guide to future performance
Of slight concern is the fact that ASOS will need to maintain this breakneck speed of growth to continue justifying its lofty valuation, as evidenced in the July update when the shares were hit after slightly weaker than expected sales.
However, its ongoing investment in the business and planned international further expansion means there is much to go for. Being an aggressive growth stock means that surplus cash is being ploughed back into the business rather than being paid out as a dividend, which hitherto has been a winning strategy.
Today's results have proven largely reassuring for investors, and the early share price reaction partly reverses what has been a disappointing recent performance, with the shares having fallen 12% over the last year, as compared to a 4.4% dip for the wider AIM 50 index, and a hefty decline of 18% in the last three months alone.
Further back, the performance is rather stronger, with a 67% rise in the price over the last three years and the company may now be back on track with investors. The market consensus certainly bears this out and, with prospects for the business being seen in a positive light, the general view of the company as a 'strong buy' will most likely remain intact.
*Horizontal lines on charts represent previous technical support and resistance. Â
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