Asos Shares Undervalued - the Morningstar View

Morningstar analyst Jelena Sokolova says that the fast fashion firm's shares are now attractively valued after the recent share slide

Jelena Sokolova 12 October, 2021 | 10:38AM
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Asos warehouse

We don’t expect to materially change our fair value estimate as Asos delivered weaker revenue but better profitability in fiscal 2021 than we expected and came up with 2022 and midterm targets that are broadly comparable with our forecasts. After losing around one half of value year to date - and falling 15% on Monday - we see shares as attractive, given the still strong potential runway for growth for the business and over 60% upside to our fair value estimate.

For the year to end-August 2021, the company reported 20% revenue growth with a significant slowdown in the second half (versus 25% full-year growth we forecast and 24% growth in the first half of the year). Nonetheless, and despite gross margin pressures of 200 basis points mainly due to freight cost inflation, the company delivered a solid operating margin of 4.90% (3.80% in our forecasts), or 5.30% adjusted for acquisition integration costs, thanks to continuing benefits from coronavirus-related lower return rates, which have started to normalise, lower travel expenses and operating efficiencies.

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Jelena Sokolova  is an equity analyst for Morningstar