In a nod to the ‘Faang’ acronym (Facebook, Apple, Amazon, Netflix and Google), Hawksmoor has grouped together ASOS, Boohoo, Fevertree, Abcam and PurpleBricks as ‘AbFab’.
However, despite being the largest stocks on Aim, Hawksmoor argues the stocks are trading at “exorbitant valuations” and say investors should tread with caution.
In a statement, Hawksmoor said: “At the time of writing, the average price-to-earnings ratio of the group is a sky-high 50x. PurpleBricks, a website valued at £1bn, is actually loss-making.
“Our concern is that the valuation levels at the top of Aim are therefore not driven by the rational appraisal of underlying businesses, but primarily by asset flows.”
Share prices for the AbFab stocks have risen dramatically over the past twelve months, with firms like Neil Woodford favourite Purplebricks and tonic water manufacturer Fevertree recording share price gains of 165% and 77%, respectively.
However, share prices of the AbFab firms have proven volatile over the past month.
ASOS’s share price dropped 6% this month, although its share price year to date (YTD) has risen by 11% to £57 per share. Similarly, Boohoo’s shares have fallen 5% within the last month but are trading 43% higher at £1.97 per share YTD.
Meanwhile, Purplebricks saw its shares plummet 10% to £3.41 early October, its lowest point since May.
And Hawksmoor argues that the environment is going to get even tougher for these industry disruptors, which could put investors at risk.
“Though these companies have seen momentous revenue growth in their infant years, the outlook has become more challenging as new competitors spring up,” the firm said. “Relatively low capital requirements mean the threat of new entrants is extraordinarily high.
“It becomes a race to the bottom on margins, and less future growth potential for incumbents. When those pressures couple with bubble-like valuation levels, there are good reasons for investors to be worried.”
