Investors in ASOS (LSE: ASC) (NASDAQOTH: ASOMF.US) have had a rather mixed week, with the companys share price firstly being hit by the news that CEO and founder, Nick Robertson, has sold around 10% of his total stake in the company for 20m. This news caused the companys share price to fall by around 2.5% and understandably made shareholders in ASOS feel somewhat nervous regarding the companys future prospects.
These nerves, though, now seem to have dissipated, since shares in ASOS are up 12% today even though there has been no further significant news flow. In fact, the sharp rise in the companys share price could be due to the reason for the CEOs share sale, with it now emerging that it was simply to fund a tax bill. As such, it is unlikely to be reflective of his view regarding the companys future prospects and, in any case, he still owns over 8% of the company that he founded and still runs.
Priced For Success
While ASOS does have a genuinely bright future and undoubtedly enjoys a very enviable position as the go-to online fashion retailer for twentysomethings, it is very much priced for success. In other words, if it is as successful as the market believes it will be (and it has exceptionally optimistic expectations) then its current valuation could be justified. However, anything less and ASOSs valuation could come under pressure and lead to further falls in its share price as was the case last year when its valuation fell by a whopping 59%.
So, while the CEOs share sale is not a reason to sell, the companys current valuation could be for me. For example, ASOS trades on a price to earnings growth (PEG) ratio of 1.8, which appears to be overly generous given its recent track record of profit warnings. In fact, looking ahead, it would be of little surprise for ASOS to experience something of a two-speed performance profile, with its UK operations continuing to provide stunning growth as the UK economy improves and disposable incomes rise, while its international operations could continue to provide logistical challenges and much lower growth rates.
As such, and even though recent months have left many ASOS shareholders in loss-making territory on their investment, ASOSs share price could come under pressure this year. As a result, and irrespective of the CEOs share sale, I personally feel that now could be the right time to exit and look elsewhere for better value stocks.
And, with that in mind, The Motley Fool has written a free and without obligation guide called 10 Steps To Making A Million In The Market.
It’s a simple and straightforward guide that could help you to find the best value companies with the most appealing future prospects. As such, it could make a real difference to your portfolio returns and make 2015 and beyond an even more profitable period for your investments.
Click here to get your copy of the guide – it’s completely free and comes without any obligation.
Get FREE Issues of The Motley Fool Collective
Get straightforward advice on whats really happening with the stock markets, direct to your inbox. Help yourself with our FREE email newsletter designed to help you protect and grow your portfolio wealth.
By providing your email address, you consent to receiving further information on our goods and services and those of our business partners. To opt-out of receiving this information click here. All information provided is governed by our Privacy Statement.