Peloton (NASDAQ: PTON) stock soared in trading yesterday as rumours circulated that sportswear giant Nike and online retail juggernaut Amazon were considering bidding for the battered fitness firm. Does it make sense for a Foolish UK investor like me to climb on board for the ride?

Reasons to buy

Despite having been a Peloton sceptic for a long time, I don’t think this company is without merit. 

Its flagship bikes are undeniably beautiful bits of kit. Like any other premium brand, I can still see some people wanting one for the image it projects. That’s regardless of how often they actually intend to use it. And a few businesses may consider that to be worth (quite a bit) more than the $10bn valuation it now trades for. 

There’s also little doubt in my mind that the industry is only likely to go from strength to strength in the years ahead. The evolution of smart health-related tech shows no signs of slowing. The influence of social media will surely play a role in pushing more people to improve their fitness too. 

The idea of a heavyweight like Amazon or Nike acquiring the company could also attract other potential suitors to the fray. Apple‘s name was bandied about when Peloton stock first began its awful slide. Having seen it now tumble 80% in one year (even after yesterday’s 21% rise), the Cupertino-based business could now throw its cap into the ring.  

Reasons to steer clear

But let’s come back down to earth for a second. 

One of my biggest gripes with Peloton as an investment is that, aside from aesthetics, I’m not seeing much to separate it from the competition. There’s no ‘moat’ here, to coin a term from Warren Buffett. The fact that Peloton has now cut the price of its equipment on multiple occasions only serves to confirm this.

It’s also a sign that the trend for more people exercising at home may be coming to an end at the same time as the pandemic. Gyms bring an element of socialisation to fitness that staring into a screen can’t. That will be the case no matter how interactive Peloton tries to make its classes.

On top of this, Peloton has already faced a lot of negative publicity as a listed company. These have ranged from the highly serious (product recalls following injuries to pets and children) to the frankly ludicrous (TV shows featuring characters having heart attacks while using its machines). That’s hardly what I like to see as a prospective investor.

So, will I buy Peloton stock today? 

It will be fascinating to see how all this plays out. Amazon clearly has sufficient clout to revitalise the company whereas Nike has arguably better knowledge of the industry. 

Then again, yesterday’s initial excitement could easily dissipate just as soon as it arrived. After all, there’s no guarantee of a bid from either business materialising. In such a scenario, I’d be left holding stock in a company with dwindling revenue and a challenging outlook. That smacks of gambling to me. And that’s not the Foolish way.

I won’t be buying Peloton stock. Instead, I’m inclined to keep my powder dry for other opportunities.

If I were to buy a sold-off share, it would probably be this one. 

The post Peloton stock just surged! Time for me to buy? appeared first on The Twelfth Magpie.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon, Apple, Nike, and Peloton Interactive. 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.

As I speculated in March last year, car dealer Lookers (LSE: LOOK) was to enjoy a brilliant 2021. Throw in 2022’s gains so far and it’s now in serious danger of losing its penny stock status. Not that I expect holders will complain. 

Penny stock power

Since February 2021, shares in the small-cap have soared over 150%! Contrast this with the 17% and 8% uplift in the FTSE 100 and FTSE 250 respectively and I have more evidence of how minnows have the potential to turbocharge my wealth. This is assuming, of course, I select them carefully. A healthy bit of luck goes a long way too. 

Still, the reasons for Lookers incredible returns aren’t hard to fathom. A shortage of semiconductors and a consequent slowdown in manufacturing has accelerated the price of new and second-hand vehicles. This, when combined with the growth in savings as a result of multiple UK lockdowns, was always likely to benefit the £380m-cap company.

With Covid-19 travel restrictions throwing holiday plans into disarray, the rush to buy a new (or nearly new) set of wheels was inevitable in hindsight.

Can this continue?

January’s trading update certainly made for pleasant reading. Trading “remained strong” and “above the Board’s expectations” in the final quarter, thanks to “excellent new and used vehicle margins“. Like-for-like after-sales revenues were also up 7.1% compared to the previous year. 

The share price also received another huge boost at the end of last month after Constellation Automotive Holdings snapped up almost 20% of the company. According to chairman Ian Bull, the new investor regards the company as “significantly undervalued“. Then again, you wouldn’t expect them to say anything different. No less than 102p was paid for each share!

Time will tell if this proves to be a good bit of business. Lookers certainly appears cheap at face value. Even with the near-39% drop in earnings per share expected in 2022, the stock still changes hands at a P/E of just nine. A forecast dividend yield of 3.3% is also in the offing to prospective owners.

Based on these attractions, I’m cautiously optimistic this penny stock can continue rising. That said, I don’t doubt they’ll be some profit-taking soon. I also need to remember that margins are wafer-thin and demand will surely moderate as supply chains get back to normal.  

Bouncing back in 2022?

Since I highlighted its potential at the same time as Lookers, it’s worth mentioning that I remain optimistic about freight manager Xpediator (LSE: XPD). That’s despite the company’s share price coming back down to earth after motoring during the first half of 2021.

January’s trading update on FY21 didn’t contain any nasties as far as I could see. Revenue “in excess of £300m” is now expected. That’s growth of at least 36%. Adjusted pre-tax profit will also be “well in excess of £8.5m” compared to the £7.2m achieved in 2020. 

Looking ahead, a new 200,000 sq ft facility in Southampton is predicted to bring efficiency and capacity benefits this year. Increased business in Europe is also likely as Covid-19 restrictions are lifted.

For balance, it’s worth mentioning that this penny stock’s margins are as thin as those of Lookers. The current P/E of 13 is also fairly high, relative to the industry average, although the shares do come with a well-covered 3.1% dividend yield.

The post I was right about this penny stock! Here’s another one I’d buy appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

The FTSE 250 is in fine form this morning, rising over 1% in early trading. Is this a sign that February might be a little kinder to investors?

Well, no one knows for sure where share prices will go in the near term. As such, I prefer to stick to my strategy of owning great stocks for years rather than weeks. With this in mind, here are two members of the index I’d be happy to buy, whatever happens next. 

Long term theme

Petcare retailer Pets At Home (LSE: PETS) is an example of a great FTSE 250 business that I could see myself holding for the long term. That’s despite its share price falling around 7% in 2022 so far.

A beneficiary of multiple UK lockdowns and the pet boom that accompanied them, the mid-cap continues to release encouraging updates. Group like-for-like revenue increased 8.7% in the 12 weeks to 30 December compared to the same period in 2020. Perhaps more significantly, it was also 28.1% higher than two years ago.  

This isn’t all that surprising. Pets At Home now seems to have every corner covered. In addition to its 455-store retail estate, the company is rapidly growing its online presence (evidenced by the 99% jump in omnichannel revenue on a two-year basis). It also has a burgeoning veterinary services arm, gaining 9,200 new registrations per week on average.

At 20 times forecast earnings, the shares aren’t exactly cheap. However, I can’t see the themes of “long-term pet ownership, humanisation and premiumisation” highlighted by the company disappearing any time soon. Moreover, the company is “firmly on track to report a record year of sales and profit growth”, according to soon-to-depart CEO Peter Pritchard. It also has net cash of £77m on its balance sheet. 

My only slight concern right now, aside from the need to replace its leader, is the extent to which inflationary pressures might impact the company going forward. They certainly won’t go away overnight. Then again, that’s true for all sorts of businesses. 

I’d be comfortable buying Pets At Home today but I’d back up the truck if the share price continues to fall over 2022.

Another solid FTSE 250 stock

Kitchen supplier Howden Joinery (LSE: HWDN) is another FTSE 250 stock that benefited from the three UK lockdowns. A hot housing market may have also contributed to what has been something of a purple patch for the near-£5bn-cap business. Like Pets at Home, however, the shares have lost a bit of momentum in 2022 so far. As I type, they’re down 12%.

Howdens is down to report its latest set of full-year numbers (covering the vast majority of 2021) later this month. Given that the company only recently stated that pre-tax profit should be “at the top end of analyst forecasts“, I can’t see its value tumbling from here.

Of course, I may be completely wrong. Now that we look to be coming to the end of the pandemic, there’s a possibility that more existing holders may look to bank some profit. After all, kitchens aren’t something that people replace every year.

Still, a P/E of 17 doesn’t exactly scream ‘overvalued’ when I consider Howden’s solid margins, strong brand, consistently high returns on capital and sizeable market share. So, even if the company does struggle to repeat 2021’s performance, I’m confident that this would still be a worthy addition to my quality-focused portfolio.

The post FTSE 250: 2 growth stocks I’d buy and hold for years appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Howden Joinery 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.

Lockdown beneficiary

In retrospect, the time to pick up stock in online casino and gaming operator 888 Holdings (LSE: 888) was just before Boris Johnson announced the first national lockdown. Back then, the share price was around 80p. A couple of months ago, 888 achieved a 52-week high of 494p. 

Unfortunately, I didn’t act on my own bullish call in 2020, due to the sheer number of attractively-priced options out there during the market crash. Even so, I’d still be prepared to buy now, especially as 888’s valuation has now fallen back below the 300p mark.  

Aside from general market skittishness, some old-fashioned profit-taking is probably behind this selling pressure. Some investors may have taken the 15% reduction in business-to-consumer betting revenue in Q3 as a sign that trading momentum is now slowing. A more likely catalyst, however, is the recent legal shake-up in the Netherlands that requires online betting firms to obtain a licence. In response, 888 has ceased to operate there — a decision that’s expected to hit profit by $10m. 

I’d snap up this cheap UK share

Since this is a temporary measure, I think the fall may be overdone. Shares in 888 now trade at just 14 times forecast FY22 earnings. That looks great value, considering 888’s agreement to buy William Hill’s non-US assets could put a rocket under profits in time. What’s more, the stock comes with a potential 12p per share dividend next year (or 4.1% yield at the current share price).

All this before we’ve even considered the increase in business 888 could see if there’s a fourth national lockdown.

Buy the dip?

Another cheap UK share I’m interested in buying would be commercial and domestic lighting firm Luceco (LSE: LUCE). Despite staging a brief comeback in November, shares in the mid-cap were back to 337p by last Friday. That’s a significant drop from the 52-week high of 513p it hit back in September. 

This fall leaves Luceco’s forecast P/E at a little under 16. This may not look like a screaming bargain initially. However, this number should never be looked at in isolation, especially if the company scores well on quality metrics.

While past performance is definitely no guide to the future, Luceco has long generated high returns on invested capital. It’s this, according to UK top fund managers like Terry Smith, that plays a significant role in great long-term returns. Luceco could therefore prove to be a steal at current levels.

I must emphasise the word could here. There is a chance that recent cost pressures may not peak in early 2022 as the company expects. The fact that less than half of the company is available to buy on the market (i.e. a low ‘free float’) may also mean the share price lurches rather than drifts lower.

Still, I’m not concerned with trying to time the market exactly. What’s more important to me is buying a decent business at a sane price and holding on. I remain bullish on Luceco.

The post I’d buy these cheap UK shares today 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?
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• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

Game on

Total revenue rose 7% to just under $230m in the three months to the end of September. As usual, the vast majority of this ($220.3m) came from the company’s business-to-consumer (B2C) division. Here, an 11% rise in gaming revenue was logged. This is impressive when it’s considered just how good the previous year was for the company, thanks to people being forced to stay at home (and surf online).

On the downside, a 15% fall in betting revenue was also reported from this part of the company, due to the “condensed calendar of sporting events” happening in Q3 last year. Even so, B2C betting was still 21% higher compared to Q3 two years ago. For me, this is a far better way of gauging just how quickly the company’s growing. 

All of the above brings 888’s revenue for the year-to-date to $758.3m. That’s a rise of 28% compared to January-September 2020.

But can this last?

The fact that 888 continues to rake in cash following the lifting of restrictions bodes well. For its part, management believes that trading over the remainder of 2021 will be in line with expectations. 

Then again, nothing’s guaranteed. Aside from the (admittedly small) possibility that we’ll want to spend less time at our screens, one issue with any gambling-related stock is the potential for increased regulation. 888’s no stranger to this after the Dutch government’s recent decision to launch a licencing system for online betting in the country.

As a result, 888 removed itself from this market at the beginning of October. It now intends to apply for a licence “in the coming months” and be up and running by H2 next year. Even so, the company’s expecting a $10m hit to earnings. This may help explain why the share price is down today.

Will 888 be snapped up?

In a move that could turbocharge profits in the year ahead, 888 snapped up William Hill International in Q3. It also launched SI Sportsbook in Colorado and 888sport in Germany. Having been the hunter for a while, however, I think it’s quite possible that 888 could become prey. 

At yesterday’s close, shares were trading at 20 times forecast 2021 earnings. That looks very reasonable for a company that boasts a strong brand, is growing well, has net cash and consistently posts excellent returns on the capital it invests. Even if a suitor doesn’t come knocking immediately (and I’m against buying solely on this possibility), I wouldn’t rule out further consolidation in the industry in time.

The one that got away

888 is one of those stocks I highlighted as being a potential bargain in the early days of the coronavirus crisis. Unfortunately, it’s not a stock that I went on to buy myself. Had I done so, I’d be sitting on a gain of around 260% by now. Still, one can’t be invested in everything.

Offering a tempting combination of growth and income, I’d be comfortable buying this stock today — takeover candidate or otherwise. 

The post As Playtech is gobbled up, is this FTSE 250 stock next? appeared first on The Twelfth Magpie.

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• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
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• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

US-listed Peloton (NASDAQ:PTON) stock fell heavily last week. Is this a great opportunity for UK investors like me to buy a lockdown winner from across the pond? Here’s my take.

Why is Peloton stock falling?

One reason is a slowdown in revenue growth. As Covid-19 restrictions have lifted, Peloton has struggled to shift as many of its premium exercise bikes as it did in 2020. Accordingly, the firm now believes Q1 sales will come in at $800m. That’s a significant miss from the $1bn expected by analysts.  

On top of this, the company has also had to deal with the fallout from the tragic death of a child who was pulled underneath one of its treadmills. In response, Peloton recalled its Tread and Tread+ products in the US. A similar recall happened in the UK after the running machines’ consoles developed a nasty habit of falling off. All this has added to company costs and potentially hurt its reputation. Investors are sweating. 

Will this continue?

Lacking a crystal ball, no one knows what will happen. However,  we do know Peloton intends to lower the cost of its once-highly-coveted bike for a second time by 20%.

While another reduction in price might attract those initially put off by the cost, it will also cause a near-term impact on earnings. That’s understandably frustrating for those already holding Peloton stock since the business only announced its first profitable quarter as a listed company in September last year.

Given the market’s obsession with what happens over the next few months rather than years, I suspect Peloton could be in for a rough ride for the rest of 2021. Bear in mind too that the S&P 500 could conceivably let off steam soon.

No matter. There are a number of other ways I can tap into the keep fit/wellness industry without buying Peloton stock. 

Better buys?

I’d be more tempted to buy shares in Gym Group. Back in May, it announced that trading since being allowed to reopen was outperforming its own expectations. Membership numbers have bounced back, suggesting that the social aspect of exercise is still important to fitness fanatics.

Another alternative would be retailer Halfords. Like Peloton, the UK company was a huge beneficiary of multiple UK lockdowns as people sought to stay fit (and sane) by getting outside on their bikes. Despite rising 122% in value over the last year, the shares still change hands for just 12 times earnings. Then again, one drawback is that riders tend not to replace their durable companions every few months. 

A third option is nutrition firm Science in Sport. Its share price has climbed almost 150% since last August. However, its small-cap status makes the stock potentially very volatile. Competition is also fierce. I think this is arguably the riskiest option of the three.

Hard pass

The fall in Peloton stock isn’t a complete surprise. We’ve seen a few UK lockdown winners drop in value as investors have piled back into battered value plays. 

The lack of consistent profits, however, is more worrying for me. Aside from aesthetics and tech, I’m still struggling to justify buying one of its machines when cheaper options still do the job. If I wouldn’t buy as a consumer, why would I buy as an investor? 

For now, Peloton stock is a hard pass for me.

The post Should I buy Peloton stock? appeared first on The Twelfth Magpie.

More reading

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• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Peloton Interactive. The Motley Fool UK has recommended The Gym 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.

Despite the odd wobble along the way, the FTSE 100 is now up 19% in the last 12 months. Naturally, some of its constituents have done far better. Can this continue in September when results fly in thick and fast though? Here are three companies I’ll be keeping an eye on. 

JD Sports

Having climbed 41% over the last year, shares in sportswear retailer JD Sports (LSE: JD) are now well above their pre-Covid levels. It’s easy to see why. 

Back in July, the company said it had seen good post-lockdown trading. Business was particularly healthy in the US. As such, JD felt comfortable raising guidance on full-year pre-tax profit to “no less than £550m” from £475m-£500m previously. This would represent a 31% increase on that logged for 2020/21. 

Valuation-wise, JD shares trade on 26 times earnings. That’s lower than other shares in the FTSE 100. However, I don’t think it can even be described as cheap, particularly as margins in this business are very average. Overseas sales may also suffer if Covid-19 infections begin rising again. The possibility of brands such as Nike and Adidas trying to lure shoppers to their own sites is another threat.

Interim numbers arrive on 14 September. As good a company JD is, I’ll be watching next month rather than buying. 

Kingfisher

B&Q owner Kingfisher (LSE: KGF) reports half-year figures on 21 September. Unless something has gone seriously awry, these should be very robust. After all, UK lockdowns, a shift in working patterns, and a white-hot house market have all played into the company’s hands.  

A couple of months ago, KGF reported that it continued to see high levels and demand from new and existing customers. As a result, like-for-like sales growth for the first six months of the financial year would now be 22%, rather than “mid-to-high teens.“

Adjusted pre-tax profit would also be in the range of £645m-£660m — a healthy increase from the £580m-£600m previously predicted.  

The question however, is how long will the home improvement boom persist. Having spent so much time inside, I wonder if people will now be more concerned with going on holiday rather than taking on fresh DIY jobs. The arrival of colder weather could also put (external) projects on ice. Factor in tough comparatives and I’m wary of buying now.

Next

Retailer Next (LSE: NXT) is a final FTSE 100 stock I’ll be watching (but not buying) in September. Like the others, shares in the clothing and homewares top-tier titan have done well in the past year. A gain of 31% certainly isn’t to be sniffed at, especially as this still comfortably beats the index.

There’s little doubt in my mind that Next is a quality business. Last year aside, it’s long generated strong returns on capital and high margins. Led by Simon Wolfson, the management team is also top drawer.

Again however, the likely switch to ‘experience’ spending leads me to think that the Next share price may have peaked. Indeed, brokerage Credit Suisse recently said that it expects clothing sales to lag the more general retail revival in the rest of 2021.

Since I already have exposure to the clothing market via a certain AIM-listed giant, Next shares aren’t for me right now. However, I will certainly be scrutinising those half-year numbers when they hit the market on 29 September. 

The post 3 FTSE 100 stocks I’m watching in September appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Next. 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.

If anyone asks me for an example of how stock-picking can generate life-changing wealth, I usually direct them to FTSE 250 fantasy figurine maker Games Workshop (LSE: GAW). In five years, the company’s share price has climbed over 2,300%.

Hindsight’s a wonderful thing, of course. Moreover, what happened in the past is no guarantee of what will happen in the future.

So, the question is, would I buy now? Based on the numbers released by the company today, the answer would likely be in the affirmative.

Profits rocket at this FTSE 250 stock

Stuck indoors due to multiple UK lockdowns, it was only natural fans of GAW would turn to their games to pass the time. As a result, revenue climbed 31% to a little above £353m over the year to 30 May. That’s impressive considering Games Workshop had to close its physical stores for a hefty proportion of those 12 months.

As you might expect, GAW’s online offering took up the slack. Sales via this channel increased 70%, ultimately helping pre-tax profit to rock almost 69% higher to £150.9m. 

Strong growth ambitions

So can GAW keep growing? Management certainly thinks so. Looking ahead, the company said it would aim to increase its presence “in every major country in the world” and “search for customers everywhere.“

Hyperbole aside, China and Japan look to be key targets with the FTSE 250 firm planning to open Warhammer store/cafes in Shanghai and Tokyo in 2021/22. These should lead to greater customer engagement and, consequently, sales. GAW also said today it was committed to opening 10 Warhammer stores per year in North America.

Combine all this with the launch of several video games, live action/animation shows and a fresh online store and I think the future looks very positive indeed.

Have we seen the top?

Even so, there are a few arguments for searching elsewhere in the market for promising investment opportunities. First, there’s the near-term outlook.

Having benefitted from more people spending time indoors over 2020/21, sales may now begin to moderate as people spend their cash on outdoor pursuits. This — combined with today’s weakness in the FTSE 250 as a whole — may help explain why Games Workshop shares were down more than 4% in early trading.

Second, there’s the price. Before markets opened this morning, GAW shares were trading at an analyst consensus of 31 times forecast earnings. That’s certainly isn’t cheap. If markets were to sour over the rest of 2021, it’s arguably the highly-priced stocks — where expectations are highest — that’ll suffer the most. 

Third, investors need to consider just how big Games Workshop has now become. A market capitalisation of £4bn is approaching FTSE 100 territory. If I were seeking companies that were capable of doubling their share prices over a short period of time, I’d likely need to look lower down the market spectrum.

Long-term hold

To his credit, CEO Kevin Rountree reflected today that the company isn’t concerned with “any short-term share price volatility or the weather.” As a Foolish, long-term investor, I know I should adopt the same approach. So, on balance, I’d be happy to buy the shares for my own portfolio today.

With its disciplined finances, high-profit margins and incredible returns on capital, I suspect this is one FTSE 250 stock that’ll go on delivering the goods.

The post 1 FTSE 250 growth stock I’d buy today appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Games Workshop. 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 share price: a warning…

Let’s start with a bit of context. In terms of trading, ASOS has been one of the few real beneficiaries from multiple UK lockdowns. With no stores to browse, it was predictable that young consumers would gravitate towards the company’s website for their fashion fix. 

For a while, sales were buoyant as people stocked up on less formal gear to make it through working from home. The ASOS share price did very well too. It rose from a low of 1,060p in April 2020 to just under 6,000p a year later. That’s an incredible gain of over 450%!

The problem is that momentum such as this can’t last forever. When news of slowing sales came last week, it was equally inevitable that some investors would be unhappy.

Another thing that may have exacerbated the fall in the ASOS share price was its relatively small ‘free float’. This is the percentage of a company’s stock that’s available to trade on the stock exchange. For ASOS, this sits at a little less than 70%, according to Stockopedia. Most companies of its size have free floats nearer 100%. In practice, this can make moves up or down more violent.

…or an opportunity?

There’s another way of looking at this. Will any of the setbacks mentioned in last week’s update still be relevant in, say, five years? I’d be surprised. 

Yes, Covid-19 is proving a stubborn beast to beat. However, two-thirds of adults have now received both jabs in the UK. While an increase in infections is very likely as all restrictions are removed, Boris Johnson appears committed to his belief that there’s no turning back now. Supply chain pressures should also be transitory.  

On top of this, ASOS’s growth strategy should have borne fruit by then. Let’s not forget that the firm recently acquired brands such as Topshop and Miss Selfridge. These should complement organic growth and help increase the company’s share of its target market here and abroad.

Great opportunity

Having tumbled last week, shares in ASOS now trade at 26 times forecast earnings. That’s still nowhere near the sort of multiple that would get value investors salivating. However, it’s a much lower valuation than ASOS has previously traded at. Moreover, investors shouldn’t compare an online giant with, say, a struggling airline or energy provider.

Sure, things could be tricky for a while. The mooted online sales tax would be another headwind for the company. Even so, this is very much a ‘known’ risk and one management has no doubt factored into its planning. 

So, while suggesting that the ASOS share price crash now makes it the bargain of the year may be taking things too far, I do think Thursday’s reaction was overdone. I therefore consider this a great opportunity for me to build a position in a company that’ll likely be worth far more than £4bn in a few years. 

The time to buy stock in a quality growth story is when the momentum jockeys have temporarily jumped off. I think that time has arrived here.

The post The ASOS share price crash: is this now the bargain of 2021? appeared first on The Twelfth Magpie.

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Paul Summers 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.

Both stocks have performed brilliantly since then. But would I buy either now?

Worth a gamble?

Shares in 888 are up a little over 250% since I suggested they were likely to suffer less than rivals from the cancellation of sporting events. So proved to be the case, with the company seeing a huge rise in the number of people playing its games.

Today’s latest update contained some more good news with trading being “slightly ahead” of what management had been expecting.

Total revenue increased by 10% to $247m over the quarter to the end of June, primarily driven by strong growth in regulated markets including the UK, Italy and Spain. Unsurprisingly, revenue from sporting events jumped thanks to the lifting of restrictions. On the flip side, revenues from the firm’s poker and bingo offerings were down, albeit from understandably high levels in 2020. 

While nothing can be guaranteed, 888 now predicts full-year adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) will come in “slightly ahead of the prior year“.

Would I still buy now? That’s a tricky one.

Today, 888 reported that average daily revenues in the UK have been “approximately 20% lower than the year-to-date period before that” since Boris Johnson allowed shops to open on 17 May. Although not a complete surprise, I do wonder if some investors may interpret this as a sign that this growth stock’s purple patch is ending.

Then again, 888’s strategy remains appealing. News of a partnership with Sports Illustrated in the potentially very lucrative US market is encouraging. Confirmation of a sports-betting licence in Germany also bodes well. At 21 times forecast earnings before markets opened, the valuation isn’t excessive either.

On reflection, I think 888 remains a good bet in a crowded industry. Even so, I’m not sure I’d go ‘all in’ today. 

Solid hold

Since my bullish call in March 2020, shares in Bloomsbury have climbed 82%. This great performance isn’t all that hard to fathom. With nowhere to go, it was inevitable that many would reach for a book or two (or 20) to ease lockdown boredom. Again, so proved to be the case.    

Back in June, BMY reported a 14% increase in full-year revenues to just over £185m. This was far better than the wider industry’s 2% rise. Pre-tax profit also jumped 31% to £17.3m.

Positively, this momentum has continued into the new financial year. Bloomsbury already expects revenue to be “ahead” and profit to be “comfortably ahead” of market expectations.

Naturally, nothing can be guaranteed. We won’t stop reading, of course. However, the full lifting of Covid-19 restrictions does mean that people will do other things with their money and time. Personally, I’d prefer management to be a little more cagey and surprise on the upside.

No matter. Like 888, Bloomsbury looks a solid long-term hold. It has a clear strategy to build its digital offering and stacks of cash on the balance sheet. At 19 times earnings, the shares remain reasonably priced compared to other growth stocks. 

I wouldn’t necessarily back up the truck for my portfolio, but the next chapter could still be engaging so I’ll keep watching it.

The post I was spot on about these UK growth stocks. Here’s what I’d do now appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Bloomsbury Publishing. 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.