Is the ASOS share price worth £40 per stock?

ASOS is outperforming its high street rivals, with sales surging during lockdown and the business forecasting annual profits to hit the top end of its guidance. But will its shares reach analysts £40 price target in 2020?

Shares in ASOS are expected to soar in 2020, with analysts median target price for the stock at £40 per share. But is the online fashion retailer really capable of rallying a further 17% over the next five months?

Well the company has certainly performed well enough so far to justify analysts optimism despite the uniquely challenging trading environment that has been created by the coronavirus pandemic.

Last week, ASOS released its latest trading update which revealed that annual pre-tax profit is likely to come in at the upper end of market expectations after the company recorded a 10% increase in sales for the four months to the end of June.

Group sales over the period jumped to a little over £1 billion, up from £919.8 million last year, with retail sales up 10% to £983.3 million. Meanwhile, UK retail sales slid 1% to £329.2 million and US sales edged fell 2% to £124.9 million, while international sales pushed up 17% to £654.1 million.

‘Our performance in P3 shows that we are delivering against this aim despite the tough economic and social backdrop,’ ASOS CEO Nick Beighton said. ‘We have learnt a lot and adapted quickly, and ASOS finishes the period with improved underlying profitability.’

‘While we remain cautious about the consumer impact of Covid-19 looking forward, we are on track to deliver strong year-on-year profit growth and to return to positive free cash flow for the full-year,’ he added.

ASOS closed at £34.08 per share on Monday, with the stock up 2% year-to-date – outperforming the broader market with the FTSE 100 still 17% lower over the same period due to the economic impact of the Covid-19 outbreak.

Covid-19 helps online sales surge at ASOS

The retailer’s strong performance in the face of challenging market conditions means that the company does not ‘foresee a material inventory risk or write-off requirement relating to Covid-19’, with the business planning to repay cash to the UK government for furloughed workers.

‘As we said at HY results, sales were circa 20 to 25% lower when those measures were first introduced,’ ASOS said in its latest trading update on Wednesday. ‘We are therefore pleased to have delivered 10% sales growth for the period overall.’

‘This performance was supported by good new customer acquisition, strong growth in 'lockdown' product categories (casualwear, activewear, face and body), an overall improvement in underlying demand and beneficial returns behaviours showing more deliberate purchasing,’ the company added.

ASOS: Technical Analysis

Lately the stock has been trying to push above key resistance on a number of occasions at £35.60 suggesting there are some profit takers in the market following the stock’s stellar 245% ascent since the start of April, according to Victoria Scholar, presenter and market analyst at IG.

‘July’s price action has been more range bound stuck between £30 and £35 roughly, suggesting a pause for ASOS before its next move. A break out of the range could provide some clues into its future trend direction.’

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