Stock of the day 08/12/2014 – ASOS PLC

ASOS has become an expert at luring in young audiences to its online shopping experience; however, as the company prepares for its Q1 2015 trading statement on Tuesday, issues from earlier in the year are still weighing heavy for the online fashionista.

Analysts at Numis have predicted a slowdown in growth to around 9%, down from last year’s 15% growth, due to a lack of stock and the weakening euro. However, despite this decline, Numis still rates ASOS shares at a ‘buy’, with a target price of £32.50.

One of the reasons for the lack of stock comes from a warehouse fire in June that had disastrous results for the clothing company. The suspected arson attack saw £30 million worth of stock go up in flames. This came only weeks after the company had seen share prices fall by 30.5%, as ASOS issued its second profit, a warning it blamed on a weak pound hurting overseas sales. This drop came after share prices had already fallen in March from £58.08 to £53.04 in a week. This series of bad news has meant that ASOS has not got anywhere near its 2014 high of £71.13, a price it reached in January.



Since this triple-threat of bad news, ASOS shares have languished between £22.00 and £27.00. Shares jumped nearly 20% in August at the news that there was a potential US bid for a stake in the company. This came to no immediate fruition and shares began to fall again. Yet history repeated itself once more in early October, as rumours of a bid from Amazon caused shares to rise 15% to £22.29.

ASOS could not avoid the FTSE-wide slump of mid-October, with the fashion retailer falling to its 2014 low of £17.46. It rose again as we entered November, only to quickly level out yet again. In the second half of 2014 ASOS’ rises have almost immediately been followed by a drop, and as mentioned, the company has come nowhere close to recapturing the prices it entered the year on.

However, ASOS isn’t dead. Despite its forecast growth drop, ASOS has been announced has the most popular UK online retail site for being shared on Pinterest for the second year in a row. This may sound like nothing, but sites like Pinterest and Instagram are direct ways for companies to receive free promotion to its key demographic, something ASOS chairman Brian McBride is well aware of.

Monday has seen share prices grow by 4.6% to £24.31; whilst this is a third of its year high, growth before a trading release is a healthy sign. With the holiday shopping period now in full swing, ASOS will be looking to Christmas forecasts, and Cyber Monday figures to instil some cheer into the company’s present situation, and reassure investors that all is well at the online retailer.