Can the ASOS share price reverse its 50% drop in 2022?
The performance of ASOS (LON: ASC) shares has been hugely disappointing over recent months. The online fashion retailer’s stock price has dropped by around 50% in the past year. By contrast, the stock market has made double-digit gains over the same time period.
Clearly, the company is experiencing a period of significant uncertainty. Its latest results highlighted management changes that remain ongoing. A new Chair will seek to find a replacement CEO. In the meantime, interim positions are in place.
It would be unsurprising for a new CEO and Chair to make changes to the firm’s strategy. After all, its financial performance is set to disappoint in the current year, with investors currently expecting a decline in earnings per share from 126p to 92p. This uncertainty and the prospect of change could create further volatility for the ASOS share price over the short run.
However, the company’s latest results highlighted that it continues to make progress in a number of areas. Notably, revenue increased by 22% at constant currency, while the firm was able to grow its active customer base by 13% so that it now stands at 26.4m.
Indeed, challenges such as higher costs caused by Brexit and currency headwinds, which negatively impacted margins in the 2021 financial year, could realistically ease over the medium term. When combined with double-digit revenue growth, the firm’s financial prospects could improve.
In fact, investors currently expect ASOS to deliver a rise in earnings per share of around 29% per annum over the next two financial years. Trading on a forward price-earnings ratio of 25, the stock could offer fair value for money if the business is able to deliver on its upbeat financial estimates.
Clearly, factors such as supply issues, rising costs and a high level of competition could impact negatively on the firm’s financial outlook. So, too, could changing consumer habits prompted by the easing of pandemic-related restrictions. They may lead to a return, to some extent, of previous shopping habits that were less focused on digital avenues.
However, in the long run, ASOS’s position as a digital-only retailer could mean it is well placed to capitalise on a likely rise in the proportion of retail sales that are conducted online. Although it faces significant short-term risks that could mean investor sentiment is weak, its upbeat financial forecasts and valuation suggest that it offers long-term recovery potential.
At the time of writing the ASOS share price is 2,373.00 GBX.
Not Investment Advice
Note: Views expressed are those of the writer. The author does not own any stocks mentioned. The article is information, not advice. Share prices can rise and fall. Past returns are not a guide to the future. Please do your own research.