Many UK fashion stores — both big chains and independents — have been going under or closing locations due to falling physical store sales, high costs and consumer caution. The problem is that many of us are going online for cheaper clothes and more convenience… and we don’t have to move off our sofas to do that.
As a result, I believe there is money to be made by investing in fast-fashion e-tailers, which is why I intend to put more money than ever into these two businesses.
A brighter future ASOS (LON:ASOS) (LSE: ASC) may seem like a somewhat surprising choice considering the 87% pre-tax profit drop the business reported in April this year. However, investors still appear to be backing the company, seeing much brighter times ahead and perhaps listening to Nick Beighton, the CEO who claims that “ASOS is capable of a lot more”.
Despite the fall in profits, its online visits have risen by almost 16% this year. Furthermore, Topshop and Topman have recently agreed to launch ranges on the website in the next few months. ASOS has been one of the Arcadia-owned chains’ biggest rivals, so it is a big development for the company to now have those brands drawn into its eco-system and on its website. Topshop has had its own troubles, but it remains a strong attraction and the agreement could drive an increase in traffic and profits for ASOS.
The fact that two high street fashion rivals have decided to sell ranges on the site really does say a lot about the powerful position the company is in. The stock is priced at around 3,268p at the time of writing with a P/E ratio of 33.71 but I still believe that it’s the perfect time to buy, despite what has been an unstable P/E recently. Analysts predict that the share price will increase by 22.7% in 12 months. Furthermore, analysts were 25.67% below with their predictions on ASOS’s annual profits last year, suggesting that the company keeps outperforming. With major brands selling on the site, a powerful presence online and comforting predictions, I think it is worth the investment.
Conquering the US Boohoo (LSE: BOO) is another online fashion retailer that I want to invest in, although some might think I am too late. This year has seen Boohoo’s shares rising 50%, which is understandable as profits have climbed a massive 48% in the past year.
Boohoo shares are currently priced at around 230p with EPS climbing a whole 29% this year to 4.15p. The shares have a P/E ratio of 71 which does raise concerns that they are overvalued. However, I believe the stock is worth the investment thanks to its fantastic growth this year, strong net cash of £194m and its popularity abroad. Boohoo is not just the Boohoo brand. It is now a multi-brand group and its other brands have not let it down with PrettyLittleThing and Nasty Gal seeing revenue rising by 107% and 96% this year. These brands have strong international growth potential. All three are up 79% in the US, with the rest of Europe also up by 72% this year.
Boohoo’s revenue is expected to climb another 30% this year and analysts are predicting the share price will be 831p in 2024. Meaning, if you buy now at 230p you could gain 276%+ in five-years. I feel comfortable investing my money in this company.
fional has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended 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.
Motley Fool UK 2019