ASOS heads higher

Ahead of next week’s first-quarter figures, the market appears to be factoring in that ASOS will be one clothing retailer that achieves improving sales.

The markets’ valuation of the firm continues to grow, and it now has a market capitalisation of £5.75 billion. This valuation is more than enough to ensure that when it leaves the Alternative Investment Market it will be promoted to the FTSE 100 at the first opportunity.

With so many of the high-street clothing retailers dropping the ball, this again offers online store ASOS the opportunity to increase its already high standing with the investment community. To date the company has ploughed all of its profits back into the business, but any move into the FTSE 100 could prompt it to embark on dividend payments, converting it into an income and capital-return play.

ASOS has managed to maintain a market lead over competing firms through the standard of its online platform and the excellent integration of goods delivery. Unburdened by the prohibitive costs of high-street rental costs, the firm has been able to remain competitively priced. It has also been more successful than most in translating this UK shopping experience to an overseas market, and now receives just over 60% of its annual revenue from sales outside the UK.

Considering that Next posted an increase of 21% in last-quarter sales, the markets will be expecting ASOS to improve on this figure. And all the indications suggest that an increase greater than 30% could well be on the cards.

Even so, a glance at the charts would infer that the shares are overbought, and the blue-sky potential is being fully factored in. As the company has continuously managed to deliver growth in its sales, there have been very few opportunities to buy on a correction.

ASOS plc chart

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