Can these high flyers keep on surging?

Will these two shares fly like a rocket, or are they fated to crash back to earth?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

If I look at the Boohoo.Com (LSE: BOO) share price chart these days, I can’t help thinking “oh no, it’s happening again.

Since January 2015, Boohoo shares have more than five-bagged to 119p — with an 8% rise today taking the price up 21% since interim results on 27 September. Revenue in the half climbed by 40%, while pre-tax profit soared by 129% with EPS up by 24%, which is very impressive.

So what is it that’s happening again? It’s the ASOS (LSE: ASC) thing. ASOS pioneered pureplay online fashion retailing in the UK, but its investors have had a very rocky ride along the way.

Should you invest £1,000 in ASOS right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if ASOS made the list?

See the 6 stocks

ASOS shares peaked at more than £70 at the beginning of 2014, having five-bagged in just two years, but by August that year the price had fallen two thirds from its zenith and hasn’t since regained that level.

We then saw a climb to more than £40 by April 2015, followed by another slump. And now, just like Boohoo, ASOS shares have stormed ahead again, this time by 186% since October 2014 to £50.70 per share.

Let’s pause for a valuation check on these two…

What’s Boohoo worth?

Analysts are predicting a 50% earnings rise for Boohoo this year, followed by a further 23% in the year to February 2018, which is something that most investors would dream of. But that puts the shares on a very lofty forward P/E of 71, dropping only as far as 58 next year.

To put that into perspective, to get the shares back in line with the FTSE average of around 14, those two forecasts would have to come true and then we’d still need a further quadrupling of earnings!

That would take seven more years of continued earnings growth at the predicted 2018 rate, assuming no further share price rise for the duration — any price appreciation over that time would surely push ‘regular valuation’ day more than a decade away.

What does the PEG say? The PEG, which compares the P/E with the forecast growth rate, tries to quantify a growth share’s potential — with investors typically seeing 0.7 and lower as particularly attractive.

Boohoo shares are on PEG valuations of 1.4 this year and 2.5 next, which don’t look good to me — we really would need that massive decade-long surge in earnings to justify them.

How about ASOS?

At ASOS we see an even scarier picture, with even more elevated P/E multiples of 88 and 69 for the next two years. Analysts suggest earnings growth of around 30% for this year and next, a rate that would need to continue for another six years beyond current forecasts to get that P/E down to average levels (and longer if there’s any share price increase while it happens).

PEG ratios? Even less attractive, at 2.9 and 2.5.

Now, online retail really is a booming business, and fashion is a massive market for it. And while I, in my mature years, prefer to touch and feel the clothes before I consider a purchase, I’m told by those who know that today’s younger shoppers are perfectly happy to order lots of stuff to try in the comfort of their own homes, and send back what they don’t like or what doesn’t fit.

But even with all that going for Boohoo and ASOS, those current valuation figures almost make me want to cry! Couple that with the total absence of dividends, and they’re bargepole shares for me.

Should you invest £1,000 in ASOS right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if ASOS made the list?

See the 6 stocks

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended boohoo.com. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

2 stocks to consider buying in July for the long-term travel boom

There are numerous ways to play the long-term growth in travel demand. Our writer highlights two stocks to consider for…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Warren Buffett’s 4 goals contain lessons for all investors! Here they are

Billionaire investor Warren Buffett once set out his four ongoing goals. Our writer reckons they are instructive for investors at…

Read more »

Portrait Of Senior Couple Climbing Hill On Hike Through Countryside In Lake District UK Together
Investing Articles

Rome wasn’t built in a day, and neither is £51k a year in passive income!

Our writer highlights a FTSE 100 stock that he thinks could beat the market long term and help target a…

Read more »

Happy woman commuting on a train and checking her mobile phone while using headphones
Investing Articles

This FTSE 100 outperformer keeps going from strength to strength

3i shares might be up 670% over the last 10 years, but Stephen Wright thinks there’s more to come from…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Scottish Mortgage is a passive income superstar! Who knew?

Harvey Jones gets the surprise of his investment life when he discovers just how much passive income this top FTSE…

Read more »

Night Takeoff Of The American Space Shuttle
Investing Articles

This SpaceX-linked AIM growth stock is up 100% this year! Time to buy?

This UK growth stock has doubled in 2024 thanks in part to a lucrative US deal. With strong margins and…

Read more »

Rolls-Royce's Pearl 10X engine series
Investing Articles

The Rolls-Royce share price hit yet another record high last week! Still time to buy?

The Rolls-Royce share price has soared 2,287% in under five years and in recent days hit a new all-time high.…

Read more »

Two business people sitting at cafe working on new project using laptop. Young businesswoman taking notes and businessman working on laptop computer.
Investing Articles

£10,000 invested in Palantir stock 2 years ago is now worth…

I’m under no illusion that some long-term investors in Palantir stock will be considering an early retirement. The stock has…

Read more »