ASOS Share Price Forecast October 2021 – Time to Buy ASC?

Shares of online fashion retailer ASOS (LSE: ASC) are in the red today, closing at 2394p as of October 15^th (17:56 GMT+1). The retailer is currently experiencing a price crash due to Brexit costs, increasing freight costs, other cost inflation, and additional headwinds. All of these factors have led to disappointing full-year results.  Other factors include the shock resignation of CEO Nick Beighton and a decreased gross margin of 45.4% which has caught investors off guard.

ASOS – Technical Analysis

ASOS’s financial statement indicates that its market cap is now at £2.384 billion with total assets worth £2.885 billion. Revenue for 2021 was at £3.91 billion with a profit margin of 3.28% compared to £3.26 billion in 2020.

Moving averages for ASOS such as Exponential Moving Average (10)(2597), Simple Moving Average (10)(2615), Exponential Moving Average (20)(2823), Simple Moving Average (20)(2906), and Exponential Moving Average (30)(2999) are indicating a sell action. Oscillators such as Relative Strength Index (14)(25), Stochastic %K (14, 3, 3)(11), Commodity Channel Index (20)(−116) and Average Directional Index (14)(43) are neutral.

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Recent Developments

Founded in 2000, ASOS is at the forefront of the UK’s online fashion retailing industry and has joined AIM in 2001. The company has since expanded around the world, redefining the e-commerce fashion market. Its revenues have increased by almost 140% in the last 5 years. However, ASOS’s revenue is almost half that of its largest rival, Boohoo.

ASOS released its full-year results on October 11^th which disappointed many investors. However, it did contain some positives, such as the increase in full-year revenue up to 22% to reach £3.9 billion which is impressive top-line growth. There was also an increase in active customer base by 13% year on year to reach 26.4 million. However, the negative metrics spotted on the results were behind the recent share crash.

ASOS’s gross margin for the year decreased by 2% to 45.4% which has likely been caused by reasons such as FX headwinds, increased customer investment, elevated freight and Brexit-related duty costs. The company expects these supply chain pressures to exist throughout the first half of this financial year which may result in longer lead times and constrained supply from a number of its partner brands. Revenue for H1 is expected to increase by only mid-single digits, due to tough comparables in the first half of the year.

Should You Buy ASC Shares?

Investors considering buying ASC shares should be aware of a few risks. While last year was a good one for the retailer when it came to sales, ASOS has been unable to sustain this expansion post-lockdown. Factors include increasing costs and customers returning to shopping offline. The company’s profit margins are coming under pressure as it warned that profits could decrease by as much as 40% next year.  Additionally, chief executive Nick Beighton, resigned after 6 years which came as a shock for investors.

So, to put it all together, existing challenges such as intensifying pressure from competitors, rising costs, supply chain disruption and the loss of its CEO have put the company in a very bad spot. With ASOS’s finance chief running the company on a day-to-day basis for the time being, the organization is in desperate need for an experienced CEO to steer the group through the above challenges. Considering the above now is not the time to add the shares to your portfolio. Several of its competitors have a better outlook, with a more focused business model, as they are better prepared.

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