ASOS plc, Boohoo.Com PLC, Debenhams Plc, Next plc, Sports Direct International Plc: Which Retailer Will Win?
Investors in ASOS (LSE:ASC) have enjoyed a great start to the year, with the online fashion company seeing its share price surge by 25% year-to-date. Clearly, this is good news but, with a sky-high valuation, it continues to be difficult to justify buying a slice of the company.
For example, ASOS has a price to earnings (P/E) ratio of 72.8, which is 4.5 times the FTSE 100's P/E ratio. And, while ASOS is expected to grow its bottom line by 26% in financial year 2016, it still equates to a price to earnings growth (PEG) ratio of 2.8, which is very unappealing. As such, and while ASOS does have a bright future as a business, it does not seem to me to be a sound investment at the present time.
However, ASOS's rival, Boohoo.Com (LSE:BOO), is a much more appealing prospect. That's because, while it also has impressive growth prospects, it trades on a much more appealing valuation. For example, Boohoo.Com's P/E ratio of 28.4 is rather rich but, when you consider that its bottom line is forecast to grow at a faster rate than that of ASOS over the next two years, it makes much more sense as an investment than its larger rival.
In fact, Boohoo.Com is expected to increase earnings by 33% this year and by a further 22% next year. When combined with its P/E ratio, this equates to a PEG ratio of just 0.6, which indicates that it could be a strong performer moving forward.
Also offering growth at a reasonable price is Sports Direct (LSE:SPD). It is forecast to increase its bottom line by around 14% per annum over the next three years, which is roughly twice the growth rate of the wider market.
Of course, this rate of growth is not surprising, since Sports Direct has averaged net profit growth of 33% per annum during the last five years. And, when its P/E ratio of 18.6 is taken into account, the resulting PEG ratio of 1.1 indicates that it could be a strong performer even though weak investor sentiment has led to a 16% fall in its share price during the last year.
Over the last five years, shares in Next (LSE:NXT) have risen by a whopping 285%. That's an incredible result during what has been a challenging period for UK-focused consumer stocks. However, looking ahead, Next's performance could disappoint in 2015 and beyond, as its valuation appears to be somewhat overly generous given its outlook.
For example, Next is forecast to increase its bottom line by 8% in the current year and by a further 7% next year. When combined with its P/E ratio of 17.2, this equates to a PEG ratio of 2.2. As such, and while Next remains a high quality business, the investment case at the present time seems to be rather difficult to justify.
Although Debenhams (LSE:DEB) is due to report flat earnings in the current year and next year, its appeal as an investment is significant. That's because it trades on a P/E ratio of just 10.9 and, as such, has considerable scope for an upward rerating.
Of course, a catalyst will be required for this to take place, since a flat bottom line is unlikely to stimulate demand for shares in Debenhams. And, with it currently yielding 4.2% off a very well-covered dividend, a desire for dividends among investors could see Debenhams' share price move higher over the medium to long term.
Furthermore, with Debenhams due to return to growth in financial year 2016, investors could begin to see that the company is a very appealing turnaround story, which could boost its performance in the medium term. As such, it appears to be the pick of the five retailers discussed here, although the likes of Boohoo.Com and Sports Direct continue to offer a potent mix of growth and value, too.
Peter Stephens owns shares of Debenhams. The Motley Fool UK has recommended Sports Direct International. The Motley Fool UK owns shares of ASOS. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.