Will the startling rise in the Boohoo and ASOS share prices continue?

It has been an extraordinary 12 months for the two online fashion companies, shares in ASOS and Boohoo have enjoyed a remarkable run. Will it continue?

Article updated: 11 January 2017 10:00am Author: Michael Baxter

What happened

Question: When does a 75 per cent rise in a share price over 12 months look ordinary? Answer: When you are called ASOS and you are comparing with Boohoo.

For ASOS it has been a stunning 12 months. For Boohoo, it has been even better.

12 months ago, shares in ASOS were trading at 3,068p and in Boohoo at 36.69p. As I write, ASOS shares are up to 5,399p, Boohoo at 145p.

In fact, sales at Boohoo were up 55 per cent in the four months to December, ahead of expectations.  We don’t know about ASOS yet, but analysts are predicting at 30 per cent rise. 

But to get a better feel for how the two companies are doing, look back further. 

In fact, for Boohoo, the time to have bought was nine months after IPO. The company listed in March 2014, with a share price of 75.50p, this fell to just 22p in January 2015. 

For ASOS, IPO was in 2008 – a few weeks before the financial crash.  IPO price was 1484p. It fell by about a third within six months, doubled in 2010, and peaked in February 2014. The share price may have surged this year, but it is still down on the peak price set just shy of two years’ ago.

So, looking back over the last two years the two companies have seen quite different performances.

What I can say is that a good time to have bought into both companies was October 2014 – since then the ASOS share price has doubled, Boohoo is up more than six-fold.

The nadir

Back in the summer of 2014 one of the big questions on analysts’ lips related to why the ASOS share price was doing so badly.  It was a tough time. The company had warned that profits were going to be less than forecast, and it had blamed the high pound hitting markets such as Australia and Russia. A report in Money Week offered this view: “I can’t help wondering if ASOS has grown too far, too fast.” It cited Freddie George at Cantor Fitzgerald, who said: "We remain concerned that the ranges in womenswear have been expanded beyond the levels management can adequately control. Hence, we believe the company has seen significantly higher levels of markdown activity in womenswear and higher returns.”

Looking at that comment from 2014, it is tempting to say that the time to buy is when cynicism in a stock is at its height.

It is just that sometimes people are cynical for good reasons.

The lesson

I for one made a mistake – you could call it a booboo – not one I am going to repeat.

I didn’t listen to my kids. As a result, I did not see this one coming.

I have often said that if you want to know which way the M&S share price is going next, watch my wife go shopping.  She takes one look at the clothes, and see chaos. She looks at the food – as do I for that matter – and says yummy.  I have an exclusive for you. My wife says: “I don’t tend to go to Marks and Spencer for clothing, just lingerie and food”.

Now I don’t want to bother you with my problems, but I am too old, and indeed so is my wife, to know much about ASOS and Boohoo.

But my kids tell me that they rate ASOS. My 27-year-old says she paid £10 to get next day delivery for a year.

She tells me that ASOS sell lots of different clothes, some its own brand, while Boohoo just sells its own brand.   I relate this, to illustrate a point. She seems to know quite a lot about both brands.  Whereas, I had to do research to write this piece.

In fact, she is right. Boohoo makes around half of its products in the UK, and is not solely an online seller. ASOS is more like the Glencore of the online fashion world. Just as Glencore owns mines, it is also a trading company. ASOS has its own brands, but it also has its Marketplace product where it sells over 800 brands, including, by the way, Boohoo products.

If you are lucky enough to be a millennial you won’t need to ask your kids, you could instead ask yourself, or partner.

The Force

We know that this Christmas was a triumph for online. According to the latest BRC report, online sales were up 7.2 per cent year on year in December, in-store sales were down 1.2 per cent.

There will come a time when both ASOS and Boohoo run out of scope for growth.  And since both companies have whopping PE ratios, they need to grow a good deal to justify current share prices.

But the ASOS model is clever because thanks to Marketplace, it is not reliant on its own brand, and in house design expertise. It could even emerge as a kind of Amazon of the fashion world.

Boohoo is aimed at a slightly younger audience than ASOS, explaining why my daughter didn’t know so much about it.

But its potential lies with overseas sales, which have been surging in the US. The cheaper pound helps.

There is lots of potential, but then again fashion is a fickle business, especially when your target audience is so young. It is possible that as they age, they will stay with you. Just as M&S is struggling to grab a share of a younger market, and struggles even more as the people it has failed to target age, Boohoo and ASOS may benefit as millennials and generation Z age.

It seems to me that the Force is with these two companies.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees.

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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