Bottom Line: Give up the fantasy and settle into real life
INVESTORS love an excuse to panic. No sooner had Asos revealed yesterday that margins were likely to be squeezed this year as a result of slower sales and more investment, than shareholders had run screaming for the hills – wiping more than £1bn off the retailer in early trading.
Fellow online players (and stock market newbies) Boohoo.com and AO followed suit as investors suddenly realised, shock horror, that digital firms have outgoings too.
No doubt some of yesterday’s sellers were immediately flung, bad-acid-trip-style, into a dotcom crash flashback – remembering the Pets.com and Boo.com failures of the early 2000s. But Asos isn’t some jumped-up startup with ideas above its station; it’s a 14-year-old company with annual sales heading for £1bn that made its maiden profit a decade ago. That was in 2004, a full six years before it even started expanding internationally, and three years before it launched its own menswear line. Since its first foray into France in 2010, Asos’ growth has been relentless, hitting markets across continental Europe and the US before heading further afield last year to Russia and China.
That sort of expansion costs money, whether you’re building bricks and mortar stores or not, and investors have been only too happy to go along for the ride, sending shares 10 times higher over the past four years and giving them a ridiculous trading multiple around the 100x mark.
Of course that’s not sustainable. Neither is the 20 per cent-plus sales growth that the company has been posting.
But that’s no reason to jump ship. Asos is still going places, and investors should sit back and let it breathe.