ASOS (LSE:ASC) is a FTSE 250 inventory that’s been attracting lots of curiosity currently. That’s as a result of the web retailer’s two largest shareholders have each determined to extend their stakes.

On 17 March, Anders Holch Povlsen, and his father, Troels Holch Povlsen, elevated their mixed curiosity from 27.1% to twenty-eight%.

Two days later, Frasers Group raised its shareholding from 24.21% to 25.1%.

Each are actually near proudly owning 30% of the corporate. As soon as this threshold is reached, Metropolis guidelines require a proposal to be made for the entire remaining shares.

A little bit of a thriller

The intention of each events is unclear. Nevertheless, inevitably it’s led to hypothesis {that a} takeover bid is imminent.

Throughout the week ended 21 March, this helped the group’s shares soar 20.7%. This was a welcome aid for long-suffering shareholders. Since March 2020, the worth of the corporate’s inventory has fallen 73%.

Frasers has a historical past of shopping for companies which are struggling. Whether or not ASOS meets this definition is a matter of opinion. However the proprietor of Sports activities Direct has been steadily growing its stake over the previous three years or so, though it tends to not launch hostile takeovers.

I believe the Povlsen household is considering taking the enterprise non-public, believing that traders are undervaluing the true worth of the group. Nevertheless, trying on the latest efficiency of the enterprise, I disagree.

Some numbers

Throughout the 52 weeks ended 1 September 2024 (FY24), ASOS reported a loss after tax of £338.7m. Regardless of this, it has a present (26 March) market cap of £365m.

But the corporate’s most up-to-date buying and selling replace was optimistic. For the primary half of FY25, it’s anticipating a “significant improvement” in profitability. It’s forecasting adjusted EBITDA (earnings earlier than curiosity, tax, depreciation and amortisation) of round £34m.

However ASOS has lots of curiosity, depreciation, amortisation and impairment prices. In FY24, these totalled £340m. So even when the group has a optimistic EBITDA, it’s nonetheless a great distance from being worthwhile at a post-tax degree. And these prices are essential. Depreciation and amortisation are non-cash objects however the property to which they relate are going to have to get replaced in some unspecified time in the future sooner or later.

Unsure outlook

Regardless of its woes, I consider ASOS goes in the precise course. It’s now focusing extra on its backside line than income.

Its ‘Test & React’ enterprise mannequin seems to be working. This seeks to get new merchandise on its web site inside a number of weeks, inserting orders in small batches after which utilizing data-led forecasting to find out how a lot to reorder. This encourages the “fashion-loving 20-somethings” (its core market) to maintain coming again for extra.

Regardless of this, I don’t see a transparent path to profitability. Assuming a price-to-earnings ratio of 10 is affordable, to justify its present market cap, it will have to report a revenue after tax of £36.5m. Even when the assorted adjusting objects had been faraway from its numbers, that will require a £160m enchancment on FY24. And that’s lots of garments in an business the place margins are wafer skinny.

And shopping for a inventory on the premise of takeover hypothesis is rarely a good suggestion.

I’m due to this fact going to go away is to Messrs Povlsen and Ashley to find out the long run possession of ASOS and watch from the sidelines with curiosity.