ASOS (LON:ASC shareholders incur further losses as stock declines 11% this week, taking five-year losses to 89%

Some stocks are best avoided. We really hate to see fellow investors lose their hard-earned money. Spare a thought for those who held ASOS Plc (LON:ASC) for five whole years - as the share price tanked 89%. And we doubt long term believers are the only worried holders, since the stock price has declined 27% over the last twelve months. The falls have accelerated recently, with the share price down 37% in the last three months. While a drop like that is definitely a body blow, money isn't as important as health and happiness.

Since ASOS has shed UK£36m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

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ASOS wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.

In the last half decade, ASOS saw its revenue increase by 1.5% per year. That's not a very high growth rate considering it doesn't make profits. Nonetheless, it's fair to say the rapidly declining share price (down 14%, compound, over five years) suggests the market is very disappointed with this level of growth. We'd be pretty cautious about this one, although the sell-off may be too severe. A company like this generally needs to produce profits before it can find favour with new investors.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

ASOS is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So it makes a lot of sense to check out what analysts think ASOS will earn in the future (free analyst consensus estimates)

A Different Perspective

Investors in ASOS had a tough year, with a total loss of 27%, against a market gain of about 1.1%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, longer term shareholders are suffering worse, given the loss of 14% doled out over the last five years. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that ASOS is showing 2 warning signs in our investment analysis , you should know about...

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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on British exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.