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ASOS full-year earnings: what next for the share price?

As ASOS puts a tough year behind it, can the firm provide enough positive news to power the shares higher after a mixed few months?

ASOS Source: Bloomberg

When are ASOS’ earnings released?

ASOS publishes full-year (FY) earnings on 16 October.

ASOS earnings: what does the City expect?

ASOS is expected to report a 67% drop in headline earnings per share (EPS), to 32.3p, while statutory earnings per share fall 68% to 31.3p per share. Revenue is, however, expected to rise 12.7% to £2.7 billion. ASOS has beaten EPS forecasts in six of the last eight updates, and in five of the last eight for revenue.

ASOS is still in recovery mode following a tough year. The share price halved over the past 12 months, hit by stock availability issues, and warehouse automation projects that did not go according to plan. The firm suffered three profit warnings in seven months, as customers cancelled orders en masse thanks to the firm’s failure to deliver items on time. ASOS is also not immune to the mass discounting seen at other retailers – having been almost unchallenged as an online-only firm, others have begun to get in on the act, forcing ASOS to cut prices to retain customers.

Transition costs have continued to rise, as the firm moves some of its operations to Atlanta, and capital spending is expected to remain high. As a result, the firm expects to end the year with net debt of around £100 million, a first for the company.

ASOS currently trades at nearly 38 times forward earnings, although even this heady valuation is still firmly below the five-year average of 56. Aside from a surge in early 2019, the valuation has actually remained around one standard deviation below its five-year valuation since the end of 2018. Historically therefore, the firm is actually relatively cheap, and may beat expectations, but the lowly-valuation (relative to history) also indicates investor pessimism and reflects the troubles of the past year.

How to trade ASOS’ earnings

ASOS’ H1 earnings saw an 8.6% gain in the share price, as the firm posted numbers that were well-received by investors. The average move on results day is 8.7%, according to data from Bloomberg, so investors should be prepared for a volatile day.

At present, of the 28 analysts covering the shares, 12 have ‘buy’ recommendations, ten have ‘hold’ ratings and six view the shares as a ‘sell’. The median target price is £28.43, around 18% up on the current share price

Volatility in the shares is relatively muted, with a 14-day average true range of 110.32, significantly lower than the figure of 260 seen at the beginning of the year.

ASOS share price: technical analysis

Towards the end of December 2018, the price hit a low of £21.27. It then rallied into mid-April, but since then has lost ground steadily. A gap lower in July and declines in August saw the shares touch the December 2018 low once again, and in July the shares briefly traded below this. Since August a modest recovery has taken place, and the shares rallied to a high of £28.00 in mid-September. A pullback has since found support at £23.25, and if this represents a higher low then a push above £26.56 may result in a long-term break higher.

ASOS puts a tough year behind it

If ASOS can demonstrate that it can master the gremlins that have plagued it over the past 12 months then the shares may be able to develop some bullish momentum, especially given the comparatively low valuation. A failure to convince investors risks sparking fresh declines that may see the 2014 lows at £18 challenged once again.

ASOS chart Source: ProRealTime
ASOS chart Source: ProRealTime

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