Investors and customers of fashionable retail stocks join and leave in Herds!
Look at the chart of SuperGroup (SGP), KORS (Michaeal Kors) and COH (Coach) – they all gain popularity with customers, then the stock prices show high growth expectations as investors get involved, these growth rates are normally very difficult to achieve, as in order to meet expectations sales have to rise – but then the brands lose their appeal as they become more popular, creating the opposite effect – a glut in inventory, discounting and a fall in sales and margins!
So, buying high flying retail stocks above 30% 5Y Growth is a dangerous game… Asos reached an incredible 70% implied growth over 5Y when at 70 pounds only 6 months ago!
If you want to get into a fashionable retailers, buy when the implied growth is reasonable and you think the brand is sustainable (like Next!)
2CentView Fair values and 5Y implied growth
Asos 2000 (30%)
SGP 950 (10%)
KORS $64 (17%)
COH $36 (13%)
Analysts (e.g. GS as reported in FT today), seem to be shaking off the recent profit warning from ASOS and believe it will not affect long term prospects for ASOS.
2CentView FV=3000 if you value the company 1 year forward, and assumes considerable upside EPS Growth in 2018 …as predicted by analysts.
So at the current price, 2CentView is if you buy now at 3200, you are still buying considerable expectation for Growth in ASOS – around 39% EPS growth over 6 years.
If you think is it should be higher – buy now – or wait for a further pull back, and buy the stock at more a reasonable implied growth of sub 35% i.e. around 2800.
2CentView is that ASOS was very a expensive stock trading on an implied growth > 50% (See Tweet/Blog from 18th march)
The Average EPS growth over 5 years is only 30% – and with their weaker margin guidance – stock could fall further…At 3120 implied 5Y growth is 40%!
2CentView is that best to steer Clear of ASOS for now and look to get involved closer to 2000 pounds if you like the stock.
ASOS plunged nearly 20% following trading update – mentioned the other day, that ASOS is very expensive stock and there is a lot expected in the price – even at 56 it assumes 50% growth rate over 5 years.
$LON:BOO – BooHoo.com sold down to 58 also – picked up some shares at 58.5 (half what i would like own), they do sell some great clothes at reasonable prices and don’t see why they cannot replicate the success of ASOS over time.
$300mm issued to institutional and ‘other’ investors ….my broker never mentioned this to me so not sure any goes to retail investors (real shame because in the US they do allocate hot ipos to retail) – need to check the next hot IPO in the UK – pets at home…
What is worth?
According to their Filing to AIM they made 7mm net profit at the end of 2013, so the current market cap of around 780mm prices BooHoo on a 5Y implied growth rate of 60% – around the same as ASOS which trades on an implied growth rate of 56%. So the stock is fairly priced at 70p.
But the market is paying a significant premium to on line fashion retail stocks – 56% implied growth is expensive even for US Standards. ASOS trades on 1.8 consensus growth to implied and the 2CentView rule of thumb is to avoid stocks trading over 1.5x.
However, If you feel this growth is justified, then buy a small piece of BOOHOO…if not wait for a pull back to a more modest 50% growth i.e.45-50p where the stock was priced.