In 2022, a private funding round valued discount clothing retailer Shein at $100 billion…
Making it the largest clothing company in the world… more than Zara and H&M combined.
This week the company FINALLY went public in Hong Kong… after failed IPO attempts in the US and the UK…
Shares fell as much as 10% before clawing back to roughly the price they were listed at, leaving the whole business valued at about $26 billion.
Largely the same company… with the same 7,500 factories churning out $2 T-shirts in batches of a hundred at a time.
But $74 billion dollars of value, gone in just 4 years.
What happened in between was largely political…
Many countries cracked down on imports from China… the big one being a closure of the rule that let packages worth under $800 arrive from Chinese warehouses without paying import tax… which was Shein's entire pricing edge.
Sales growth went from 21% the prior year to 8% the year the exemption ended. Meaning that the growth story is well and truly over… for now.
And there’s a lesson here just in case any of you are jumping over to your broker in an attempt to buy a turnaround story…
Back in 2021, I owned Asana.
I bought it when the market was pricing it as one of the great software franchises of the decade…
Fast forward to today, the stock is down 85%… and most of the chatter around the stock is if a private equity will buy it.
Wowzas.
Because I didn’t think I was buying a bubble… nobody ever does.
I thought I was buying a good business... and I sort of was.
Asana is still growing (albeit slowly)… they’re even projected to be profitable next year
But the stock still dropped like a lead balloon.
That's what catches people out… and I include myself in this.
When you see a stock down 80-90% from its high… and your instinct is to assume the risk has already been taken out.
Somebody else absorbed the pain and you get the recovery… so it feels like buying quality on sale.
But it doesn’t mean the old price was true value… in fact most of the time it was lightning in a bottle…
ZIRP… stimulus money… and a story about the future people were briefly willing to pay anything for.
A stock is cheap when the cash it produces is worth more than what you pay. Not when the chart looks like a cliff face.
Shein may do perfectly well from $26 billion… heck even Asana may do well from $2 billion.
But if the only reason you're interested is that the number used to be bigger, that ain’t gonna work.
Oliver