ASOS shares rocked by tough outlook

ASOS shares rocked by tough outlook

After a year to forget in 2022, ASOS PLC shares enjoyed a reasonable start to January. Like equities generally, the price had rallied off the lows of 2022, but while stocks and the FTSE 100 & 250 were able to continue this rally, ASOS shares fell back.

Despite a well-received trading update in January, the shares have struggled since, and half-year results sent a chill through investors. The poor reaction focused on two issues, firstly the withdrawal of resources from the US business, and second the alarming drop in cash flow.

This has raised significant concerns among brokers that ASOS may be forced into fresh fundraising efforts. As a relatively high-margin business, ASOS has found itself squeezed by the rise of competitors like Vinted, and with cost pressures still hitting consumers it looks like the tough times will continue for the foreseeable future.

ASOS, having once been the bright future of online retailing, is at risk of falling far behind. Website visits, active customer numbers and order levels continue to fall. A new plan is needed, and quickly.

How to trade ASOS?

Refinitiv data shows a consensus analyst rating of ‘hold’ for ASOS – 4 strong buy, 2 buy, 16 hold, 5 sell and 1 strong sell - with the median of estimates suggesting a long-term price target of 600 pence for the share, roughly 38% higher than the current price (as of 22 May 2023).

IG sentiment data shows that 93% of clients with open positions on the share (as of 22 May 2023) expect the price to rise over the near term, while 7% of clients expect the price to fall whereas trading activity over this week shows 85% of buys and this month 59% of sells.

ASOS – technical view

The swift decline in the ASOS share price following its March-to-early May sideways trading range has taken it to levels last traded in November of 2009. The company’s share price has fallen by over 40% within the past month on disappointing half-year results before recovering slightly.

ASOS Monthly Chart

Even though ASOS’s share price last week regained around 9% after Mike Ashley’s Frasers - formerly Sports Direct - increased its stake in the online fashion retailer, it remains capped by resistance made up of the October and December lows. These were made between 459.9p and 486.4p. Together with the previous week’s price gap high point at 496.5p, these levels are likely to offer good short-term resistance.

Only a rise and daily chart close above the next higher 12 May peak at 548.2p could lead to a bottom being formed. Unless this happens further sideways trading with a negative bias remains at hand.

In case of last week’s low at 380.1p being slipped through, the July 2009 low at 306.8p may be reached.