TOP UK GROWTH STOCK - 5 REASONS TO BUY!
Last week I made British online fashion retailer Asos one of my largest investments! The stock is up 70% over the past 12 months and I’m kicking myself that I didn’t snap up more shares when the stock plummeted back in March during the start of the coronavirus! The stock has risen 500% since then and despite this rapid rise I think Asos is one of the best companies to gain direct exposure to the ecommerce boom and here are 5 reasons why!
1) ECOMMERCE BOOM
First of all then, the ecommerce sector in general is booming with online sales now accounting for 1 fifth of total sales in the UK! Despite this year being an anomaly, that figure is expected to keep growing given the increasing number of ecommerce users as a new generation of younger shoppers come of age!
Asos very much focuses on that 18-30 category and their popularity with this age group is ideal given that younger shoppers are the most likely to spend big on fashion!
The second thing I like about Asos are the fundamentals of the stock! I’ve a got a portfolio of growth stocks that I keep an eye on and of the 25 companies in that list , Asos has the best price to sales ratio (below)!
It is worth noting that Asos is growing it’s revenue slower than most on that list however it is one of the few stocks with accelerating revenue growth! If you’re still doubting that Asos is a growth stock then take a look at it’s earnings growth (above) which rose over 300% last year! This earnings growth gives Asos one of the strongest free cash flows of any growth stock out there and makes my 3rd reason for loving the stock possible!
For more information on 10 growth stocks that I believe could double in 2021 CLICK HERE!
3) RECENT ACQUISITIONS
The pandemic has destroyed many highstreet retailers and Asos has taken advantages by acquiring Arcadia Brands and snapping up some of the UK’s most popular highstreet brands including Topshop, Topman, Miss selfridge, Burton and others! These brands recorded sales of almost $1b in 2019 yet Asos was able to knock out its highstreet competition for only £265m and not only that but Asos’s profits are expected to jump 20% thanks to their newly purchased infrastructure!
4) INTERNATIONAL GROWTH
Up until the pandemic, Asos' revenue growth in the UK was stalling as the company committed to focusing on international expansion! Over the past 6 years Asos has quadrupled it’s revenue from outside of the UK and this growth should continue thanks to the purchase of Topshop & Topman which both have a good presence in the US and partnerships with large international retailers including Nordstrom & Yoox!
5) ANALYST UPGRADES
I’ve put this one last on the list for a reason because I’m not sure how important it really is! There has some really positive coverage of the stock lately from Analysts and despite a huge run for the stock, Wall Street continues to increase their earnings estimates for Asos and have announced price targets as high as $7400!
Lastly I do want to point out that the stock isn’t a slam dunk! Asos may have less competition on the highstreet yet online competition remains tough! Rival Boohoo continues to grow their revenue faster than Asos however the latter’ ability to outbid Boohoo for Arcadia was a big win and that should keep Asos out in front!
Secondly, it’s possible that when lockdown is lifted – We’ll hear all kinds of good news from physical retailers about their sales and this could cause a mini rotation out of the stay at home stocks and that includes Asos. However, If this does cause a pullback in the share price of Asos then I imagine that this would only be temporary given Asos' positioning within the Ecommerce sector!
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Disclaimer: All trading involves risk. Only invest money that you can afford to lose and remember that past performance doesn’t guarantee future results. Everything posted by me is for educational purposes only. I am not a financial advisor and no information on this website or any accounts linked with myself should be considered as financial advice. Remember, all trades are at your own risk.