They’re the two biggest companies listed on AIM, with a combined value of almost £6bn.
They also happen to be rivals, competing in the online fashion space which is a hot topic among investors at the minute.
We’ve pitted ASOS plc (LON:ASC) and Boohoo.com PLC (LON:BOO) against each other to see if one is a more worthy investment than the other.
Boohoo not undervalued in comparison anymore
One of the main arguments put forward by Boohoo bulls in recent years is that it’s chronically undervalued when compared to ASOS.
For a while at least, that certainly held true but with a share price that has nearly doubled in 2017 alone, it’s no longer the case anymore.
With projected earnings per share for the current year of 75.7p and a share price hovering around the £61.40 mark, ASOS is valued at around 81 times projected earnings.
Boohoo meanwhile, with projected earnings per share of around 2.7p this year and a share price of 240p, is valued by the markets at almost 90 times projected earnings.
Given today’s upgrade that figure may come down slightly, but Boohoo certainly isn’t undervalued compared to its bigger peer any longer.
Boohoo profit growth better than ASOS
So both have some fairly punchy price-to-earnings ratios, but does their recent sales growth suggest the future growth priced into the shares is achievable?
With revenues of £911.5mln last year and market cap in excess of £5bn, ASOS is the bigger fish; in fact it’s the biggest fish in the AIM pond altogether.
But its sales, whilst still growing, are doing so at a slower rate than over at its rival.
ASOS’ total sales grew 27% year-on-year in 2015, 25% in 2016 and 26% in the year just gone. That compares with 27%, 40% and 51% revenue growth for Boohoo over the same time period.
ASOS ahead on international sales
As Christopher Columbus found out in 1400s, there is a whole other world out there waiting to be explored.
Asos has realised that the opportunities afforded by the likes of America and continental Europe are far greater than those on offer in the UK alone.
International sales currently make up around 60% of total revenues and there’s still room to grow.
Boohoo on the other hand is still very much UK-focused with more than two-thirds of sales coming from customers in the UK last year.
While this might be a slight hindrance at the moment, it also means Boohoo has significant growth potential if it can march into those markets in a similar way to how ASOS did.
If it wants to keep revenue growth moving in the right direction, expanding its operations abroad is a must.
Third party brands
One area where ASOS has an advantage at the moment is that it stocks and sells third party brands such as Nike and French Connection, whereas Boohoo only sells its own-branded products.
While this helps to boost Boohoo’s margins, it does mean it is missing out on an increasingly profitable part of the market.
You only have to walk into a JD Sports Fashions PLC (LON:JD.) these days, for example, to see that the appetite is there from young people to spend (and spend big) on designer labels.
As inflation and stagnant wages starts to hit consumers’ pockets though, it may turn out that not selling big-name labels isn’t as much of a missed opportunity.
The higher margins also give Boohoo a little more flexibility when it comes to promotions and absorbing increasing costs of goods, both of which could help to drive sales.