The journey of online clothing retailer ASOS (ASC) on the stock market has been a pretty extraordinary one. It started life as a penny stock on AIM – when Shares first covered the story in 2003 it traded at 4.5p.

Within a little less than five years the share price had reached more than £4, by 2014 it had hit £70 and, after another retreat, at its 2018 height it traded close to £80. Even its pandemic highs saw it within touching distance of £60. Today it trades at 358p. In chart form it looks like a visual representation of the Three Peaks challenge.

There’s no doubt ASOS was once able to tap into changing trends in the world of clothes shopping. The late John Cotter supported many beginner investors as they dipped their toes in the stock market as a vice president at Barclays Stockbrokers, and this author had the pleasure of meeting him more than a decade ago.

In his 2011 volume Cotter on Investing, he explained how he returned from work in April 2005 to find his three teenage daughters gathered round a laptop and was persuaded to ask what they were so interested in.

Their reply – ASOS (As Seen On Screen) – prompted Cotter to ask more questions. When an audience at a training presentation in Glasgow the next day also showed enthusiasm for the site his interest was well and truly piqued. He initially invested at 51p.

Cotter writes: ‘There is no doubt in my mind if it wasn’t for seeing my three daughters huddled around the laptop, and the reaction to the questions I got the following day in Glasgow, I would never have heard of the company until the share price was at least eight times higher than the level at which I first bought at.’

Investors now need to decide if ASOS shares can scale another peak. Despite the company having addressed issues around costs and excess inventory, a looming obstacle could be its balance sheet. Liberum analyst Anubhav Malhotra says: ‘The cost base and working capital have been rightsized but without returning to meaningful sales growth, free cash flow generation will not improve materially as the inflow from working capital ends this financial year.

‘ASOS probably has another 12 months to fix free cash flow generation before it must start thinking about refinancing/paying the convertible due less than 24 months from now.’ If it can’t then Malhotra suggests it will have to go down the route of selling assets or raising funds from shareholders. Fundamentally, the company’s success is dependent on its ability to remain relevant with its customer base.

Teenagers and young adults are likely to remain just as focused on fashion as they have always been, but they are increasingly eco-conscious and the whole concept of disposable fast fashion is somewhat at odds with a green philosophy. If you have children or grandchildren in this demographic yourself (or friends who do), canvassing their opinion might be a good starting point.

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