Why Are Asos Shares Cheap?

VIDEO: The fast fashion innovator has had a tough few weeks, but are our analysts think the shares are now undervalued

James Gard 1 November, 2021 | 10:25AM
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James Gard: Each week we look at one stock that is cheap or expensive and why. This week it’s the turn of online fashion retailer Asos, which has a four star rating from Morningstar.

Asos has had a turbulent October. Earlier in the month, its shares plunged after a profit warning and the abrupt departure of its chief executive. Shares are down nearly 50% so far this year after a strong run in 2020 but long-term investors are used to bouts of volatility. And those who have held the shares since 2001 have made staggering returns. This is why Asos is still known as one of the Alternative Investment Market’s biggest success stories.

Despite the recent slide in the share price to around £25 per share, Morningstar’s Jelena Sokolova maintains the company’s fair value at £40.40. She says the shares are now attractively valued given the company’s growth potential. Asos is now targeting customers in Europe and the United States, where its market share is much smaller. It has 20 million active users across the world and is planning to increase its marketing spend to ward off competitors such as Zalando. In the notoriously fickle market for online fast fashion, Asos has loyal customers among millennial and Generation Z shoppers.

For Morningstar, I’m James Gard.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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James Gard  is content editor for Morningstar.co.uk