Jack Sherwin - Aspiring Stock and Forex Market Analyst
I am working to build a published portfolio of stock and forex analysis with Samuel and Co Trading. I will be posting my analysis weekly, so keep your eyes peeled for my market outlook. I would like to open my analysis for discussion and feedback from the community.
Stock in question: AIM:ASC (ASOS)
Today I am going to be exploring one of the biggest UK AIM listed stocks, ASOS PLC. I have been watching this stock for many months and it is now displaying some good technicals as well as fundamentals. ASOS is a UK fashion and cosmetic online retailer selling over 850 brands including its own ranges of clothing and accessories designed in house and distributing to 200 countries from the UK, US, and Europe. ASOS have a mission “to become the world’s number one online shopping destination for fashion-loving 20-somethings". Founded in 2000 by Nick Robertson (now non-executive director) and Quentin Griffiths, ASOS went on to be admitted to the AIM market on the LSE in 2001.
In December 2018, we saw significant reductions in consumer spending across the retail sector, leading to ASOS cutting its full-year guidance after “significant deterioration in trading”. Estimated sales growth was reduced from 20-25% to 15% in the year to August 2019 as well as profit margin falling from 4% to 2% in the same announcement. With the UK playing a big part in its earnings, ASOS’ key demographic of 20-somethings has strong concerns about the future of their economy surrounding Brexit leading to them being conservative with their spending in the retail markets.
From the daily chart here, you can see the large gap after the announcement from ASOS regarding the FY estimates. Since then, we have seen an immediate retracement back through the 2,800p level which has gone on to be consistent support for this stock in the months to follow. Price has held between the range of 2,800 and 3,350 since early January 19, I would like to see a break of the 3,350 level to allow for a long entry into this stock, looking for a long hold to 4,000 for a gain of 19%.
Interestingly, ASOS is not a dividend paying stock, giving them an open opportunity to reinvest profits and accomplish their mission to become the world’s leading online fashion destination. In our current risk-averse investment environment this may be a contributing factor to people staying out of this position if they’re looking for a stock to hold their value and pay out a dividend.
Source: Hargreaves Lansdown
As we can see from these broker ratings, ASOS is on average a buy with 1 sell, 2 neutral, 2 buys and 7 strong buys with price targets ranging from 3,500p to 5,200p. Barclays has said “there is food for bulls and bears” whilst remaining positive with their outlook, their price target being 4,000p.
Additionally, ASOS had to recently suspend their marketing campaign in the U.S after their new $40M distribution centre in Atlanta could not keep up with the demand for orders resulting in a backlog that lasted 4 weeks. Arguably, this could be viewed as a positive problem to have, highlighting the potential for ASOS in the US market over the coming years. However, it also highlights the need to improve infrastructure to cope with this demand and to ensure there are no delays in dispatching orders in the future, something that could potentially damage their reputation and deter future customers. Hopefully ASOS have learnt their lesson and will be better equipped for potential spikes in demand in the future.
Looking at this chart of ASOS’ historical debt, we can see that their debt level is at zero and has been for the past 5 years. This is a point that I consider to be a real positive when looking into a company’s statistics because unlike many stocks ASC have no interest payments to keep up, freeing up their equity to reinvest.
A direct competitor of ASOS in the UK market is online retailer and fashion house Boohoo. As you can see from the chart displaying the same time frames as ASOS, Boohoo proved to correlate strongly to ASOS, bearing the same market sentiment surrounding Brexit negotiations. In the interest of opportunity, I see more upside potential with ASC moving forward due to their huge US expansion and presence in France and Germany and have chosen to explore them as a trade opportunity over Boohoo. In conclusion, a couple of stocks with great upside potential to drop into the watchlist for the coming months.
Hargreaves Lansdown.com (20 March 2019) Asos still a ‘buy’ but with risks says Barclays, Jeffries retrieved from Hargreaves Lansdown.com: ASOS plc (ASC) Ordinary 3.5p Share News & Regulatory Announcements
Independent.com (17 December 2018) Asos shares plummet 40% as UK high street turmoil spreads to online retailers retrieved from Independent.com: Asos shares plummet 40% as UK high street turmoil spreads to online retailers | The Independent
Proactiveinvestors.co.uk (19 March 2019) What went wrong with ASOS’ US business last month? Retrieved from: What went wrong with ASOS PLC’s US business last month?
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