Dotcom bubbles – Mark 2 – ASOS

It’s noticeable that the price of on-line retailer ASOS has fallen back slightly of late. It seemed a good idea to look at what the current share price is assuming in terms of forward projections on growth in earnings. Now you can debate whether the near-term growth is 20% per annum or 30%.  Analysts’ projections seem to assume about 30% for future growth, whereas the interim results only showed growth of 22% (although sales were up 34%).

The following tables show the current p/e ratio and projections for what it might be over the next few years if the share price remains unchanged (i.e. remained at the current level of 5110p). If your target is for a p/e of somewhat over 20 which might equate to that of other retailers showing reasonable growth might be valued at, then it will take the company to 2019 to get down to that level of p/e at 30% growth. If you assume 20% growth, it will take until 2022. And that assumes no hiccups along the way.

 

ASOS

as at 26/9/2013

         
                       
   

2013

2014

2015

2016

2017

2018

2019

     

At 30% growth

EPS Forecast

48.8

63.4

82.5

107.2

139.4

181.2

235.5

     
 

SharePrice

5110

5110

5110

5110

5110

5110

5110

     
 

p/e

105

81

62

48

37

28

22

     
                       
   

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

At 20% growth

EPS Forecast

48.8

58.6

70.3

84.3

101.2

121.4

145.7

174.9

209.8

251.8

 

SharePrice

5110

5110

5110

5110

5110

5110

5110

5110

5110

5110

 

p/e

105

87

73

61

50

42

35

29

24

20

Now investors might have faith in the company that it will continue to grow at that rate, and in 2019, or 2022, that projected future growth is still as high but it is surely taking a lot on trust. And that is assuming the share price remains unchanged, i.e. investors get no capital returns between now and then.  Future growth after 2019 or 2022 would need to be high also if the share price was to continue on it’s upwards trajectory. It all looks rather unlikely does it not?

It certainly looks as though buyers have been driving the share price up not on any fundamental valuation but by speculating on what others might pay for the shares, i.e. it’s the typical “tulip” bubble when stock is in short supply.

I hope to do a future article on companies like Monitise, Blur and others which are even more difficult to value because they have no current earnings which one can project forward.

Roger Lawson

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