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The share price of ASOS (LSE:ASC) has taken a dramatic upturn today, reaching 2,763.00 by 2:30 this afternoon, a rather phenomenal 17.7% increase from yesterday’s closing price of 2,348.00. Perhaps the most interesting fact about the sudden turnaround in share price is that the company hasn’t done anything to motivate investor interest. Unless you consider rumors to be substantial reason for such a reaction.
ASOS shares, at the 2:30pm mark, ranked 5th in percentage increase (17.7) and 1st in number of trades (11,650) , actual gain (407.00), and Price x Volume (9,578), leading other London stocks by wide margins in each of those 1st place categories.
The increase is not so much because of the rumor that a U.S. firm is interesting in an ASOS takeover, as it is that the rumor doesn’t seem to be going away. It’s the persistence that is pushing the stock higher. It’s still not clear who that interested party is, but it was once thought to be Amazon (NASDAQ:AMZN). Now some are saying it is eBay (NASDAQ:EBAY). Either one would make sense in terms of synergistic reasoning. However, there is no established degree of certainty.
The latest from the rumor mill is the a deal could be in the works with eBay acquiring the interests of Danish supplier to ASOS, Bestseller. Besteller acquired a 12.1% stake in ASOS in October 2010. By January 2011, rumors had ASOS as a takeover target for Bestseller. That never transpired. Although Bestseller owned about 27% of ASOS shares as of August 2013, it became apparent that Bestseller’s plans were somewhat different than had been imagined, as it actually broadened its fashion portfolio by acquiring a 10% stake in Zalando GmbH, an ASOS competitor.
Purchasing the Bestseller stake in ASOS would make sense for eBay, effectively making it the major ASOS shareholder and adding the ASOS brand and customer bases in an effort to drive a more retail-oriented business than its original resale model.
The problem for investors, as usual, is trying to figure out where ASOS share price is going next. That’s not quite so easy to do, especially considering the company’s track record in the market. ASOS experienced a dramatic and almost constant increase to 7,050.00 in February 2014 from 1,766.00 in August 2012. But this year has been a disaster. We reported in June that the ASOS share price had declined by more than 50% since February to close at 1,752 on 20 June. Then the ASOS Barnsley warehouse fire prompted the company to shut down its website whilst damages were being assessed and a recovery plan put into place.
During ASOS’ last fiscal year, the company reported a 40% increase in retail sales and a 23% increase in pre-tax profits. We are only a few days away from the end of its current fiscal year on 31 August. It would seem to me, that a lot could hinge upon what that report reveals, although any courtiers would already know. On the other hand, it may all just boil down to how much Bestseller wants to profit from the sale of its shares and the current upturn is just the result of others hopping on to benefit from the ride.
