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Why a 10% fall could mark the right time to buy into the ASOS share price

AOL 2018-07-12 16:05:03

Shares in online fashion retailer ASOS (LSE: ASC) declined by around 10% on Thursday after the company announced that year-end sales growth would be at the lower end of previous guidance. The company's trading update showed progress elsewhere, though, with its UK and international performances both strong.

Looking ahead, the fall in its valuation could make it a more enticing investment. Alongside another stock with FTSE 100-beating growth potential, now could be the right time to buy it.

Rising sales

In the four months to the end of June, ASOS recorded 21% sales growth in constant currency terms. Encouragingly, its performance in the UK remained robust, with retail sales rising by 23%. This is in stark contrast to a number of other UK retailers, with sales growth generally being difficult to achieve. And with the company's international growth up 21% and its retail gross margin rising by 1.3% versus the same period of the previous year, its overall performance has been positive.

Looking ahead, the company has a major advantage over many of its sector peers. Its online-only business model means that it has avoided rising business rates, while shoppers continue to transition to online consumption. This could provide the business with a tailwind in the long run. As such, its statement that sales for the full year will be towards the bottom end of its 25%-30% growth range may not suggest a continued slowdown over the medium term.

Although the ASOS share price has fallen heavily since its update, it still has a price-to-earnings growth (PEG) ratio of around 2.7. This is relatively high for the retail sector, but with its overall performance remaining positive, the stock could offer capital growth potential at the present time.

Unpopular stock

Also unpopular among investors at the moment is FTSE 100-member Imperial Brands(LSE: IMB). Its shares have fallen by 17% in the last year. This is a trend seen across the global tobacco industry, with increased regulation and a fall in cigarette volumes causing investor sentiment to decline.

However, Imperial Brands appears to have a significant growth platform via next generation products. At the present time, such products are focused on e-cigarettes, which offer strong growth forecasts. However, development within the segment is likely to increase at a rapid pace, and this could create strong growth opportunities for tobacco companies as they seek to offer less harmful alternatives to cigarettes.

With Imperial Brands having a price-to-earnings (P/E) ratio of around 12, it seems to offer excellent value for money. It's forecast to grow dividends per share by 21% over the next two years, which puts it on a forward yield of 7.1%. As such, its total return potential seems high, while its defensive characteristics could be beneficial should the FTSE 100's bull run come to an end.

Peter Stephens owns shares of Imperial Brands. The Motley Fool UK owns shares of and has recommended ASOS. The Motley Fool UK has recommended Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.