ASC (ASOS) finals are out today, prompting Paul Scott to tweet: “Lousy figures from ASOS. Is this co really any good? Have my doubts. Op margin only 5%. Profits down”. The market response was very positive, though, sending the shares up 16.4% to 2263p, as at the time of writing.
The shares are down 62.9% YTD, and down nearly 69% from their all-time high of 7195p. When high growth, high momentum shares stall, they do so with fanfare. I had written in the past that I valued ASC at about £20 per share. To my amazement, the shares actually reached that level. It just goes to show: if you wait long enough, then you will often find that things go your way.
A number of incidents happened to ASC since that valuation, and I said that it would probably need to be revised downwards. I thought it might be worth trying to value ASC again. I am being lazy, so I will use the application that I just published as a two-phase growth model. Here’s what the screenshot looks like:
I have been really sloppy as regards cost of capital, and so-forth. I just simply wanted a quick estimate. As you can see, the company looks to be worth about £1200m, or 1440pps, which is significantly below its current market cap of £1900m.
A better model would use a three-phase growth model, which would make it much more valuable than the figures I have suggested. Work would also need to be done on the assumptions about the cost of capital and terminal figures.
Nevertheless, I think you’d have to put in some pretty wacky assumptions to reach Barclay’s former share target of 8000p. I am completely puzzled as to how they came out with that figure. Even using a three-phase model with robust growth assumptions, I did not come out with anything like their valuation. It’s also difficult to see what pricing models they might have been using. Seriously, I think much of the time analyst’s target prices make no sense. They mostly seem to be anchored on prevailing share prices, tweaked with momentum expectations. I don’t see how else they can do it.
It will be interesting to see what happens from here.