ASOS’s share price dropped 11% in May as the afterglow of April's half-year results faded from memory. These results had provided traders with optimism as the company reaffirmed full-year guidance despite a tricky six months. Yet May’s sell-off opens up the question as to whether ASOS's [ASC] share price will see last year’s high of 6870p, ever again.
How volatile is ASOS's share price?
ASOS shares have been prone to big price movements for some years now. The huge sell-off in early 2014 saw the stock plummet 67% to 2250p by September that year. It had started at 6980p. March 2018 saw the stock yo-yo yet again. This time it soared to an all-time high of 7670p, before crashing 71% by year-end.
Clearly, the stock is sensitive to market sentiment, something its 1.58 beta rating is a testament to. On average, its peers are less volatile, with The Gap [GPS] having a fairly stable 0.62, for example.
How has ASOS performed recently?
So far this year ASOS shares are up 42%, a climb comparable to Boohoo's [BOO] 39% gain. But over a 12 month period, the share price is down 49%. December was a bad month. After a shock profit warning, the stock fell 12% in just a few days.
ASOS's six-month results highlight the challenges the company is facing. Profits were down a staggering 87% in the six months to 28 February 2019, compared to the same period last year, falling from £29.9 million to a paltry £4 million. Even heavily discounting items over Black Friday and Christmas failed to help, with average basket value down 2%. Chief Executive Nick Beighton commented:
“It’s certainly been a challenging six months for us and one of the most challenging we’ve seen in many years. Economic uncertainty has undermined consumer confidence and during the period we saw exceptional levels of discounting."
|PE ratio (TTM)||46.48|
|Quarterly earnings growth (YoY)||-87.80%|
ASOS share price vitals, Yahoo Finance, 3 June 2019
The problem isn't just in the UK. Active customer growth in Germany and France slowed from 9% to 2%. ASOS also faced problems with its US operations where its new $40 million warehouse failed to keep up with greater-than-expected demand.
Despite all this, full-year guidance for 15% sales growth and a 2% profit margin helped investors keep faith with the stock, with the share price climbing 13% in April.
What could drive growth?
John Stevenson, analyst at Peel Hunt, believes that the longer-term weakness seen in the share price could make it something of a bargain. The analyst told Reuters:
“Given the scale of the global opportunity for ASOS, the current share price weakness remains a clear buying opportunity for longer-term investors.”
The opportunity that Stevenson references is the £220 billion global online clothing market. In Nick Beighton’s own words, the company has identified a number of ‘things it could do better’ to help get the company take a bigger bite out of this market.
“Given the scale of the global opportunity for ASOS, the current share price weakness remains a clear buying opportunity for longer-term investors.” - analyst at Peel Hunt, John Stevenson
In the US, the company will focus on increasing sales in the second-half of the year now its Georgia warehouse is fully operational. While in Europe, ASOS has lowered prices in key markets to increase competitiveness. Two areas Beighton believes will be key to hitting full-year targets.
Is ASOS’s stock a “buy”?
Will the share price get back to that March 2018 high anytime soon? Well, with the current share price lagging 99% since March, this might be a long-term goal. But at least, for now, analysts seem to think the share price could start heading in the right direction.
Among the major investment houses, Goldman Sachs has a 4300p price target on the stock, and rated it a “buy” in April. That same month, Barclays upped their target to 4200p ($54.88) and gave the stock an “overweight” rating.
From the 21 analysts following the stock, the average price target is 4263p. This would represent a 28% upside on the current share price.