UK shares have been battered over the past few days, as the Bank of England have raised interest rates once again. Inflationary pressures are also showing no signs of slowing down, leading to further downward pressure. One of the worst affected UK shares is ASOS (LSE: ASC), which has dipped around 85% in the past year. Thursday was a particularly bad day for the e-commerce company, with its share price falling over 30% in a single day. This is due to the firm cutting its FY2022 outlook. But this has left the fashion retailer looking very cheap… 

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. 

The post Down 85%, here’s an unbelievably cheap UK share to buy appeared first on The Twelfth Magpie.

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Stuart Blair has no position in any of the shares mentioned.The Motley Fool UK has recommended ASOS. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Fallen star

Let’s not beat about the bush — investors in fast fashion firm ASOS (LSE: ASC) have endured an appalling time of late. Partly due to the rotation away from growth-focused, lockdown winners into value stocks, the share price has tanked 25% in 2022 so far. In the last year, the former market darling’s value has dropped nearly 70%!

Personally, I see this as an opportunity. ASOS still has many attractive qualities, including a growing portfolio of brands and great international growth prospects.  

This is not to say that the share price capitulation isn’t completely unwarranted. ASOS has faced multiple headwinds in recent times, including higher costs and supply chain constraints. The former isn’t exactly great considering margins at this sort of business will never be sky-high. UK-based online clothing retailers have also seen increased competition from overseas rivals such as China-based Shein. Oh, and the big rise in the cost of living isn’t helping any retailer. 

Still, I think these concerns are now starting to be reflected in the valuation. At 21 times forecast earnings, ASOS still isn’t ‘cheap’ in the conventional sense but it’s far more attractively priced than it used to be. The move to the main market from the less-regulated AIM might also help to entice new investors.

Assuming inflation will eventually loosen its grip, I consider the £1.75bn cap a firm ‘buy’ for me at these levels. Half-year numbers are due not long after the ISA deadline passes.

Power up

A second growth stock I’ve got on my watchlist is XP Power (LSE: XPP). This is a company I’ve actually held within my Stocks and Shares ISA before (and made a very nice profit on). Since then, however, the shares have tumbled.

XPP’s valuation is now almost 30% below where it stood this time last year. Is the actual business really 30% less valuable though? I don’t think it is. XP is a leading developer of critical power control solutions for a number of sectors. Once on board, clients rarely leave. It therefore has a bit more earnings visibility than some in the market. 

Speaking of which, it’s worth mentioning this month’s full-year results. Despite multiple headwinds including pandemic lockdowns and component shortages, the company managed to grow revenue by 3% in 2021 (to £240.3m). I think that’s actually quite impressive considering that trade from healthcare customers has inevitably moderated following huge demand in 2020. XP Power also started 2022 with a record order book of £217m. 

Having been caught up in the general market sell-off, the shares now trade on 17 times forecast earnings. The 2.8% dividend, nicely covered by expected profit, is the cherry on top.

Like ASOS, I believe XP will recover in time. Of course, there’s no such thing as absolute certainty and the fact that Covid-19 infections in Asia are on the rise again is not great news for this Singapore-based business. Hence, I would never allow my Stocks and Shares ISA to be overly invested in a particular sector, including this one.

The post 2 growth stocks I’d buy before the Stocks and Shares ISA deadline appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Paul Summers has now position in any of the shares mentioned. The Motley Fool UK has recommended ASOS and XP Power. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

ASOS: growth potential

After soaring due to the pandemic, and the shift to online shopping, ASOS has struggled over the past few months. This is due to several short-term headwinds that face the company, including supply chain pressures. Such headwinds means that sales growth is only expected to be between 10% and 15% for FY22, far slower than in previous years. Further, costs are also likely to soar.  This includes higher inbound freight costs, labour cost inflation and increases in marketing costs. As such, profit before tax is only forecast to be around £125m, a 30% decrease from this year.

Still, despite these risks, I’m confident in the long-term future of the group. Indeed, the group is targeting £7bn worth of sales over the next three or four years, with operating profit margins of at least 4%. This is significantly higher than the £3.9bn that it recorded this year. 

Further, I feel that there’s significant demand for ASOS’s products, especially as the pandemic has further cemented online shopping as the way forward. With the company targeting growth in the US, there’s also major potential for growth over there. With £200m in net cash, slightly higher than Boohoo’s £100m, the company should also be able to pounce on any opportunities. This means that I’d buy ASOS stock at its current price and hold it for the long term.

Boohoo: supply chain issues

The Boohoo share price has also struggled and is currently at levels not seen since the end of 2018. This is despite the fact that the company saw revenues of £580m in 2018, compared to £1.75bn last year. Nonetheless, such a large fall can be attributed to a few main reasons. First, there was the ‘modern slavery’ investigation last year, in which it was found that some (not directly employed) workers in its supply chain were paid as little as £3.50 an hour.

While it’s making changes, this is likely to be at the expense of the company’s already slim profit margins. In addition, there’s significant competition from Chinese group Shein, which is forecasting £14.6bn in sales next year. This may tempt customers away from Boohoo. It’s equally a risk for ASOS. Finally, it recently reported an additional £26m charge relating to rising shipping costs, which may mean that profits are lower than expected.

But compared to previous years, the Boohoo share price looks extremely cheap. In fact, it currently trades on a forward price-to-sales ratio of 19. Last year, it traded on a P/E ratio of over 50. It’s also slightly lower than ASOS, which has a P/E ratio of around 22. As such, now may seem to be the perfect time to buy the stock. Even so, I’m staying away for the time being. This is because I worry about the firm’s poor environmental standards, which are considered far worse than those of ASOS. I believe that this could have a negative effect on the firm in the long-term.

The post Boohoo share price vs ASOS share price: which growth stock would I buy? appeared first on The Twelfth Magpie.

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Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK has recommended ASOS and boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

This stock could zoom upwards

After soaring in 2020 due to the pandemic, Zoom (NASDAQ: ZM) has fallen back significantly this year. In fact, over the past year, the stock is down 54%. This is mainly due to fears that the excellent growth was solely due to the pandemic, and it will slow significantly in a post-Covid world, with face-to-face meetings the norm once again. But with the fears of the new variant, this Covid stock may be an excellent pick once again.

Despite this, many people believe that stock is just a coronavirus play, and long-term growth prospects are shaky. But while this is a risk, I believe Zoom is more than just a Covid stock, and the new variant simply gives it a further boost. In fact, for the FY2022, the company expects revenues of over $4bn, over a 50% rise year-on-year. This is despite the fact that face-to-face meetings have become far more common once again. Therefore, this is a stock I’m tempted to add to my portfolio.

A telehealth provider

I’ve written about my optimism for Teladoc multiple times, and the recent variant news has reinforced this. In my opinion, the stock is oversold, and is now 62% off its recent high. Over the past year, it has also fallen 45%. Like Zoom, this has been due to fears of slowing growth after Covid.

But with the new variant, this offers an ideal opportunity for the company to gain new customers for the long term. I believe this should prompt the stock to recover some of its recent losses, and therefore I may buy more.

A UK Covid stock

ASOS (LSE: ASC) is another stock that has struggled in recent months, especially as revenue growth for the next financial year is only expected to be around 10-15%. Issues of labour cost inflation and other increased costs have also had a negative effect. This has led to fears around the company’s profit margins, which are currently at only 5.3%.

But I think that the new variant could lead to increased demand, especially if many shoppers decide to go back to online shopping. This should help boost profits, which will also allow heavier investments in parts of the business, such as in the US.

Even without any potential boost from this new variant, the ASOS share price still looks too cheap. In fact, it has a price-to-earnings ratio of around 20, and a price-to-sales ratio of under 1. For a growth stock, this is incredibly cheap. As such, although there are several risks to consider, this is a Covid stock that I’m very tempted to add to my portfolio.

The post 3 Covid stocks to buy now appeared first on The Twelfth Magpie.

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Stuart Blair owns shares in Teladoc Health. The Motley Fool UK has recommended ASOS, Teladoc Health, and Zoom Video Communications. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Today, I’m taking a fresh look at the company and asking whether this weakness could represent an opportunity in advance of next week’s Q3 numbers (due 20 October).

Deliveroo share price: time to hop on board?

Based on its most recent set of numbers, Deliveroo certainly looks like a compelling growth play. 

Back in August, ROO revealed that the value of orders placed using its platform had more than doubled in the first six months of its financial year to £3.39bn. Importantly, the company also said that it had seen “no material impact” from the reopening of restaurants in Q2. This was always one of my biggest concerns with the stock and suggests that there has now been a permanent shift in consumer behaviour.

A spate of deal-making in recent months has also been very encouraging. Building on its existing partnership with German discounter Aldi, ROO has recently hooked up with another supermarket, Morrisons, to offer a rapid delivery service (Hop) in southwest London initially, 

Clearly, any signs of initial success with this initiative and news of more deal-making next week could reassure holders. It could also succeed in helping the Deliveroo share price recover its mojo after a wobbly September.

On the other hand…

As positive as recent developments have been, there are also a number of reasons to steer clear. Perhaps the most pressing of these is that investors are taking flight from previously-loved growth stocks such as ASOS, partly due to concerns over cost inflation and supply chain hold-ups.

One might rationally argue that Deliveroo is operating in a very different area. But it’s still part of the next-gen, tech-based business wave. What worries me is that ASOS is profitable. Deliveroo won’t be for some time. This makes it harder to accurately value its stock, and this ‘jam tomorrow’ strategy could really backfire if we see a rise in interest rates to quell inflation.

Competition is another concern. We’re not only talking Just Eat or Uber Eats here. Across the UK and Europe, new firms promising ultra-fast delivery have sprung up, attracting customers with big initial discounts. That means margins will likely be very small for everyone involved. It also makes ROO look unexceptional.

Interestingly, JP Morgan recently cut its target for the Deliveroo share price to 320p from 393p. That’s not encouraging in the run-up to next week’s update. However, it may be more realistic considering the challenges ahead. And to be fair, it would still give me a 15% gain from here.

My verdict

The Deliveroo share price still languishes far below its IPO value (390p). So long as the firm is able to continue winning market share and show progress towards making a profit, I think there’s a good chance of the company getting back to this level in time. The question, however, is just how long investors will be patient.

As things stand, I think we might see a brief rally on 20 October. That said, I’m still not tempted to buy today. To really get me interested, the Deliveroo share price needs to fall significantly.

I feel ROO definitely isn’t a bargain today.

The post Is the Deliveroo share price a bargain ahead of next week’s update? appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended ASOS, Deliveroo Holdings Plc, Morrisons, and Uber Technologies. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Beighton has blamed this on supply chain issues caused by the Covid-19 pandemic. These, as we know, are a long way away from being solved. But when I zoom out and look at the ASOS share price history, as well as the fundamentals of the business, I think that this sudden dip represents an excellent buying opportunity for my portfolio.

ASOS fundamentals

ASOS is an online retailer that focuses on the sale and manufacturing of affordable clothing. This business model comes with some benefits but a lot of risks. As an online retailer, ASOS is able to cut costs on rent and staff, two of the major expenses to any business. But profit margins for affordable fast fashion can be small, and ASOS often operates with as little as 4% net profit. This contributes to the volatility in the ASOS share price.

Share price history

The first thing I see when I look at the history of the ASOS share price is extreme volatility.

Peaking first in February 2014 with a price of 6,960p, ASOS’ stock value then suddenly dropped by 40%. After a three-year recovery it was then able peak once again in early 2018 at 7,530p. But this was once again followed by a precipitous fall.

Here, I see a boom-bust cycle caused by investor over-confidence. ASOS had been doing consistently well in the years-long run-up to these periods, but was then hit by sudden drops in revenue that scared off shareholders. I believe that the same thing is happening now.

Why I’m buying 

The fashion industry is fickle. We all need to buy clothes but no one can hope to design the best look every year.

Given that, ASOS’ fundamentals remain strong. The company has brand recognition and low overheads. It was even able to halve its debt during the pandemic and continues to have a decent price-to-earnings ratio of 13:93. This is all great news for the ASOS share price.

Now, as winter draws near, people will want to spend less time shopping outside. They will want to buy more clothes both for themselves and as Christmas presents. Given what we know about the current price of gas, I’ve been looking at their line of jumpers myself.

Why I’m not buy…yet

I will not be buying ASOS just yet. I think that the share price still has some way to fall, but I will be keeping a close eye on it. These supply chain problems are external issues (like the HGV driver shortage), rather than problems with the business model or its management. I believe we will see the ASOS share price rise once again, once these are resolved.

The post The ASOS share price has crashed. Is now the time to buy? appeared first on The Twelfth Magpie.

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• Forget meal deals! Here’s how £8 a day could be worth £357,000
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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

James Reynolds has no position in any of the shares mentioned. The Motley Fool UK has recommended ASOS. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Revenue and profit jump

Unfortunately for existing holders, here’s where the good news ends.

CEO departs

In a separate statement today, ASOS revealed that CEO Nick Beighton would be leaving the company with immediate effect. A search for his successor is now underway.

Clearly, all companies will periodically require new leaders/fresh blood. After 12 years at ASOS (and six leading it), Beighton’s departure isn’t entirely unexpected. For its part, the company reflected on wanting to have the best team in place to target annual revenues of £7bn within three to four years and become “one of the few truly global leaders in online fashion retail”.

If this were the case, however, you would think that a new CEO would already be waiting in the wings. The fact that no one has been lined up is disappointing, in my view.

ASOS share price: a warning?

Despite recovering slightly, the ASOS share price is down a bruising 10% as I type. This means the company’s value has nearly halved in 2021 so far. In the last 12 months, it’s down a staggering 53%.

Things could easily get worse in the months ahead. Supply chain pressures won’t go away quickly. In fact, the company believes that this issue will lead to “mid-single-digits” revenue growth in H1. 

When this headwind is combined with further investment and a return to normal returns rates, full-year pre-tax profit is now predicted to between £110m and £140m. Achieving the lower number would represent a near-40% decline. Seen from this perspective, I’m not surprised the ASOS share price has tumbled again.

My verdict

I’ll hold my hands up and say that I thought ASOS already presented as a potential bargain before today. Although no one can reliably predict where share prices will go in the near term (not to mention accurately call a management merry-go-round), my timing was clearly off.

Even so, I continue to believe that the fragility of the ASOS share price is ideal for patient growth investors who can march to their own beat. Despite the departure of its CEO, this remains a good business with £200m in net cash, a huge following and a sound strategy for growth (including the acquisition of Topshop and a partnership with Nordstrom). 

Were it not for the fact that I’m already heavily invested in rival Boohoo, ASOS would probably top my shopping list today. The sector sell-off looks overdone, in my opinion. As things stand, however, I’ll remain on the sidelines for now.

The post The ASOS share price crashes again. Here’s what I’m doing now appeared first on The Twelfth Magpie.

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Paul Summers owns shares in boohoo group. The Motley Fool UK has recommended ASOS and boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Virtual healthcare stock

The Teladoc (NYSE: TDOC) share price soared last year as virtual healthcare drastically grew in popularity due to the pandemic. Indeed, at the start of February 2021, it had reached nearly $300, 262% higher than it was at the start of 2020. But fears that demand for virtual healthcare will decline after the pandemic have caused the share price to fall 50% to under $150.

But I feel that demand will remain strong. In fact, in the recent second-quarter trading update, revenues had grown 109% year-on-year to over $500m. Full-year 2021 revenue guidance was also raised to over $2bn, from a previous estimate of $1.97bn. This demonstrates that customer numbers continue to grow, despite the pandemic starting to come to an end. Such rising revenue is essential for any growth stock, and this is why Teladoc makes up part of my portfolio.

But there are risks. Slightly worrying was the $134m loss that the company recorded. Yet I’m not too concerned about this. In fact, a large portion of the loss came from the $83m spent on stock-based compensation, due to the acquisition of Livongo last year. I believe this acquisition gives Teladoc a competitive edge over its competitors, which should help fuel growth in the future.

A fashion-focused UK growth stock

ASOS (LSE: ASC) was another company that benefited from the pandemic, due to shoppers being forced to go online. This meant that active customer numbers have now reached over 26m, up from around 20m this time last year. However, the recent trading update also revealed that things were now becoming more difficult for the online retailer. Indeed, due to “volatility in demand”, sales had become more muted in the final weeks of June. Profits were also being squeezed due to global supply chain pressures. This caused the ASOS share price to fall 14% in one day, and it is currently still below 4,000p, having reached nearly 6,000p in March this year.

But I feel that this dip offers a good time to buy this UK growth stock. Indeed, the ending of lockdown means that more young people will be going out again. This often correlates with an increase in spending on clothes. Accordingly, the opportunities look promising for ASOS, and the recent acquisition of Topshop and Miss Selfridge should also help to propel this growth. The company also recently raised £500m through a convertible bond, demonstrating that it has confidence in its growth abilities. This is why I believe ASOS could be an excellent addition to my portfolio.

The post 2 beaten-down growth stocks to buy now appeared first on The Twelfth Magpie.

More reading

• How much is needed in an ISA to unlock £1,220 of passive income a year?
• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?

Stuart Blair owns shares in Teladoc Health. The Motley Fool UK owns shares of and has recommended Teladoc Health. The Motley Fool UK has recommended ASOS. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.