Interactive Investor

Are ASOS shares at a discount price?

21st June 2022 07:34

Alistair Strang from Trends and Targets

With the shares not this cheap for over a decade, independent analyst Alistair Strang studies the chart for clues that the selling is over.  

    When a company issues three profit warnings within a single year, there’s generally a reasonable expectation something is going horribly wrong. ASOS (LSE:ASC) have opted to join this exclusive club, their share price retreating from 60 quid down to a current £8.70. The picture is not pretty.

    Various stories have emerged regarding online buyer habits which companies similar to ASOS need to deal with. ASOS does not charge for returns, so there’s little impediment to stop buyers ordering £1,000 of clothing, intending to only keep £100 of it. They may order multiple sizes of an identical product, intending to keep the one which fits. It even makes a degree of sense but perhaps isn’t the ideal business model for an online retailer.

    Another classic wheeze is something called “wardrobing”, ordering an outfit intended to be worn for a Zoom video call, then returned. Personally, I wish there was a facility where I could order a slimmer, fitter, version of myself for video calls! It’s certainly not looking like a fun time to be in the online clothing industry.

    ASOS's share price is trading at levels not seen since 2010. Visually, we’re far from the convinced the share price has yet exhibited a viable entry level, instead suspecting it has some more relaxation ahead. The recent market movement which gapped the price below Red on the chart was especially significant, the market sending a clear signal that the uptrend since 2010 no longer applies.
    Now, it appears below 775p calculates with the potential of reversal to 592p as a fairly major point of interest. We’ve a strong reason to hope for a bounce around such a level as our longer term secondary, if the initial breaks, works out at an ‘Ultimate Bottom’ of just 90p, a level below which we cannot calculate.

    If ASOS intends to escape the current nightmare situation, the share price requires to recover above Red, presently 1,150p to tick the first box for a return to sanity. To summarise, we’re not inclined to view ASOS's share price as “cheap”, quite the opposite.

    Past performance is not a guide to future performance.

    Alistair Strang has led high-profile and "top secret" software projects since the late 1970s and won the original John Logie Baird Award for inventors and innovators. After the financial crash, he wanted to know "how it worked" with a view to mimicking existing trading formulas and predicting what was coming next. His results speak for themselves as he continually refines the methodology.

    Alistair Strang is a freelance contributor and not a direct employee of Interactive Investor. All correspondence is with Alistair Strang, who for these purposes is deemed a third-party supplier. Buying, selling and investing in shares is not without risk. Market and company movement will affect your performance and you may get back less than you invest. Neither Alistair Strang or Interactive Investor will be responsible for any losses that may be incurred as a result of following a trading idea. 

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