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On Tuesday, Deutsche Bank (ETR:DBKGn)’s analysts revised their price target for ASOS (LON:ASOS) Plc. (ASC:LN) (OTC: ASOMY), a global online fashion retailer with a market capitalization of $505 million, adjusting it to £4.40 from the previous £4.50. Despite this reduction and a challenging year-to-date decline of 25%, the firm maintains a Buy rating on the company’s shares. According to InvestingPro analysis, ASOS appears undervalued at current levels.
The adjustment comes as ASOS is navigating through a multi-year transformation aimed at refining its business model. According to Deutsche Bank analyst Adam Cochrane, ASOS is on a path to becoming a more streamlined and sustainable entity, with a focus on differentiating its offerings in the competitive online retail market. The company maintains a healthy current ratio of 1.18, suggesting adequate liquidity to support its transformation efforts.
Cochrane highlighted the company’s progress towards a new commercial strategy, which has begun to yield positive results, particularly in its UK own label segment, where sales have risen by 9%. Operating with annual revenues of $3.4 billion and a robust gross margin of 42.5%, this growth indicates that ASOS’s most developed areas are now experiencing healthy positive sales growth. InvestingPro subscribers can access 7 additional key insights about ASOS’s financial health and growth prospects.
However, the company still faces challenges with its third-party sales, which continue to exert downward pressure. Nonetheless, Cochrane noted that ASOS has effectively managed inventory levels, setting the stage for potential improvements in third-party sales performance moving forward.
The analyst’s comments suggest that while ASOS is still working through some transitional issues, the company’s strategic efforts are starting to pay off, with particular success in key areas of its business. The maintained Buy rating indicates Deutsche Bank’s continued confidence in ASOS’s potential for growth despite the minor adjustment in the price target.
In other recent news, HSBC analyst Charlie Rothbarth has upgraded ASOS’s stock rating from Reduce to Hold, while lowering the price target to GBP2.70 from GBP3.20. This adjustment follows a significant decline in ASOS shares over the year, which Rothbarth attributes to concerns in the US consumer market, accounting for about 12% of ASOS’s sales. Despite the stock’s underperformance compared to its peers, Rothbarth believes that the risks, such as the GBP253 million bond with a high yield due in 2028, are now reflected in the current stock price. Strategic changes at ASOS, including the mothballing of the Atlanta distribution center, are expected to add approximately GBP15 million to EBITDA from fiscal year 2026 onward. Rothbarth’s revised valuation approach, shifting to a discounted cash flow methodology, considers lower sales forecasts and reduced free cash flow in later years. The analyst also notes an additional GBP50 million from the bond refinancing, suggesting a more cautious view on ASOS’s future financial performance. These developments are part of ASOS’s ongoing efforts to navigate financial challenges and market conditions.
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