Key points
- Both ASOS and boohoo shares are undervalued
- Earnings are impressive for each stock
- Recent news is thought-provoking
The AIM 100 index is often a good place to seek out long-term growth stocks. Two such potential shares are ASOS (LSE: ASC) and boohoo (LSE: BOO), both of which are online fashion retailers. With these companies enjoying stunning underlying growth over the past five years, I want to know which of the two I should be adding to my portfolio to hold for the long term. Let’s take a closer look.
Excellent earnings
For the year ended 28 February 2021, boohoo reported earnings-per-share (EPS) of 8.89. During the same period in 2017, this figure stood at only 2.23. This means that over five years, this stock’s EPS has increased 399%. This is quite clearly stunning growth. With a current price-to-earnings (P/E) ratio of 37.9, boohoo’s fair share price value is about 336.9p. This stock, therefore, is trading on the market at a discount of 68.5% compared to its fair value.
Similarly, ASOS has an impressive earnings record. For the year ending 31 August 2021, the company’s EPS was 128.9. This has grown from 77.2 five years previously. The increase over this period equates to 67%. While this is not as high as the rise in boohoo’s earnings, it is still admirable. ASOS has a slightly smaller P/E ratio, standing at 30.1. It is therefore possible to calculate that this stock’s fair value is 3,879.89p, meaning that it is currently undervalued by about 40%.
I really like the strong and consistent earnings figures for both these stocks. While it does not necessarily mean that future earnings data will be as good, it is nonetheless an encouraging sign. The fact that the share price is undervalued further intrigues me.
Recent news
Although both stocks are currently ‘cheap’, there have been some recent updates that are thought-provoking. Only this week, Jupiter Fund Management announced it was slashing its stake in boohoo from 9.99% to just 4.7%. This news, together with Liberium’s recent price target revision from 320p to 200p, gives me food for thought. It should be mentioned, however, that Liberium maintained its ‘buy’ guidance on the stock. Also, the recent trading update for the three months up to 30 November 2021 contained lower profit expectations. Nonetheless, group net sales were up 10% from the same period one year before.
Indeed, for the four months up to 31 December 2021, ASOS’s sales were up 2% for the same period in 2020. In spite of this, Credit Suisse slashed its target price in October 2021 on account of profit worries. In a recent move, the company has opted to leave the AIM 100 index and join the Main List.
There is very little between these two growth stocks. Both have an excellent track record of providing earnings for shareholders and are trading at a discount. While some of the recent news is slightly negative, I will be buying both shares as part of a portfolio geared up for long-term growth.
Andrew Woods does not own shares in any of the companies mentioned. The Motley Fool UK has recommended ASOS and boohoo group. 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.
