Everybody loves a good comeback story. From Rocky to The Wrestler, Hollywood has been pumping them out for decades. In the FTSE 100, we’ve had Rolls-Royce, which went from near-zero to hero in the space of four years. Might the ASOS (LSE: ASC) share price be about to do the same?

I say this because shares of the online fashion firm rose 20% today (5 September) after an upbeat FY24 trading update. Yet at 440p, they remain 94% lower than their all-time high of 7,556p reached back in 2018.

Let’s dive into the statement to see what’s going on.

The update

There were three main announcements by the firm today. First, it’s refinancing some debt, with the issuance of £250m convertible bonds and a partial repurchase of existing £500m bonds.

Next, it said it’s launching a joint venture with Denmark’s Heartland group, which will purchase the Topshop and Topman brands from ASOS. Heartland will own 75% but ASOS will keep certain rights for the brands in return for a royalty fee to enable it to continue selling them on its site.

Heartland, by the way, is owned by Danish billionaire Anders Holch Povlsen, who has a huge stake in ASOS. He was also Scotland’s richest man last year.

ASOS will get £135m for the two brands, which will be used to strengthen the balance sheet. Net debt stood at £349m in April, so this is encouraging.

Finally, the firm expects sales for FY24, which ended in August, to be slightly below its previous forecast. That was for a decline of 5%-15%. However, it’s guiding for adjusted EBITDA (underlying profit) at the top end of market expectations.

This signals improving profitability and operational efficiency despite ongoing challenges with sales.

Progress under way

Back in 2018, ASOS was an e-commerce darling. However, a boom-and-bust cycle caused by the pandemic saw the firm’s profit margins dwindle. In April, it posted a £120m half-year loss. 

Yet there are some encouraging signs here. CEO José Antonio Ramos Calamonte’s attempt to turn ASOS into a company that “delivers sustainable, profitable growth” appears to be gathering pace.

Annual revenue remains above £3bn, giving a cheap price-to-sales ratio of about 0.16.

Meanwhile, the joint venture also seems like a good deal, as the retailer will get to continue selling Topshop clothes while improving its debt position.

That said, the sale is lower than what ASOS paid in 2021, and the transaction is expected to have a £10m-£20m negative impact on EBITDA this year before improving over time.

Should I buy ASOS stock?

My concern here is competition, especially from Shein. The Chinese fashion giant’s business model allows it to quickly design, produce, and list new products on its app in as little as seven to 10 days.

ASOS says its Test & React model has improved to bring products from design to site in less than three weeks. However, that’s still some way short of Shein’s rapid production cycle.

Unlike Rolls-Royce, where making jet engines has extremely high barriers to entry, ASOS operates in the online fashion market, which is far easier to enter and hyper-competitive. Rolls profits are surging while ASOS’s are only tentatively creeping back.

The stock could rise further, but I don’t foresee a Rolls-Royce-like turnaround. I’m not going to invest.