Last Update 26 Jan 26

Fair value Decreased 11%

ASC: Reset Expectations As Margin Delivery Will Shape Measured Share Recovery

Narrative Update

The analyst price target for ASOS has been reduced from £2.70 to £2.40, reflecting updated views from analysts who cite more cautious assumptions around fair value and profit margins, while maintaining a Neutral stance on the shares.

Analyst Commentary

JPMorgan has adjusted its view on ASOS by reducing the price target to £2.40 from £2.70 while keeping a Neutral rating. This signals a more cautious stance on how quickly the company might deliver on its profit and valuation ambitions, rather than a clear shift to either a positive or negative call on the shares.

Bullish Takeaways

The maintained Neutral rating from JPMorgan suggests analysts still see a balanced risk and reward profile at current levels, rather than a clear case for a more negative stance.
The revised £2.40 price target can be read as a reference point for where some analysts think fair value could sit if ASOS executes on its margin plans.
The focus on profit margins in the updated work shows that analysts are still engaged on the earnings story rather than writing off the equity case.
The new target reflects updated assumptions rather than a withdrawal of interest in the name, which can help keep ASOS on the radar for institutional investors.

Bearish Takeaways

The cut in the price target from £2.70 to £2.40 indicates that analysts are applying more conservative assumptions to ASOS's earnings power and fair value.
Caution around profit margins points to concerns about execution risk, including the ability to control costs and support profitability at current pricing levels.
The decision to keep the rating at Neutral instead of moving to a more positive stance suggests limited conviction that upside catalysts are visible right now.
The lower target highlights that, in analysts' models, the margin of safety on the shares has narrowed, making valuation more sensitive to any setbacks in execution.

Valuation Changes

Fair Value: reduced from 3.51x to 3.11x, indicating a modest trimming of the implied valuation multiple used in the model.
Discount Rate: held steady at 13.19%, showing no change in the required return or risk assumption applied.
Revenue Growth: kept effectively unchanged at around 36.97%, signalling that top line expectations in the model are consistent with the prior view.
Net Profit Margin: lowered slightly from 3.40% to 3.26%, reflecting a small adjustment to expected profitability.
Future P/E: reduced from 7.19x to 6.63x, pointing to a more conservative view of how the market might price future earnings.

Strategic model transformations and efficient operations aim to enhance gross margins and EBITDA, positioning ASOS for sustainable growth.
Innovations in supply chain and customer engagement, including the Test & React model and ASOS.WORLD loyalty program, drive revenue and earnings improvement.
ASOS's focus on cutting costs and shifting strategies could impact revenue generation and market share due to challenges in attracting and retaining customers.

Catalysts

About ASOS

Operates as an online fashion retailer in the United Kingdom, the European Union, the United States, and internationally.What are the underlying business or industry changes driving this perspective?

ASOS is focused on becoming the most inspirational fashion destination for 20-somethings, enhancing customer engagement and driving future revenue growth by offering exciting and relevant products. This will likely boost revenue.
The company is transforming its business model to be more sustainable and resilient, aiming for a 60 million GBP increase in EBITDA, driven by higher gross margins and efficient operations. This will improve net margins.
New strategies such as the Test & React model allow ASOS to quickly adapt to fashion trends, resulting in a 15% contribution to sales from own brands, with plans to increase this to 20% in the next six months. This could lead to higher earnings due to better inventory management and less markdown.
ASOS is optimizing its supply chain by reducing costs and improving efficiency, which has already cut supply chain costs by 20% and accelerated stock turn by 35%, freeing up capital for reinvestment. This improves EBITDA.
The introduction of a new loyalty program, ASOS.WORLD, and enhanced personalized customer experiences aim to boost customer retention and order frequency, projecting a positive impact on revenue growth.

ASOS Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming ASOS's revenue will grow by 1.6% annually over the next 3 years.
Analysts are not forecasting that ASOS will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate ASOS's profit margin will increase from -10.9% to the average GB Specialty Retail industry of 3.0% in 3 years.
If ASOS's profit margin were to converge on the industry average, you could expect earnings to reach £84.8 million (and earnings per share of £0.71) by about September 2028, up from £-294.3 million today.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.0x on those 2028 earnings, up from -1.1x today. This future PE is lower than the current PE for the GB Specialty Retail industry at 23.3x.
Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
To value all of this in today's terms, we will use a discount rate of 12.94%, as per the Simply Wall St company report.

ASOS Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

ASOS has been reducing stock, promotions, and investment in performance marketing, which may impact revenue generation if they cannot attract new customers or retain existing ones effectively.
The decline in sales in the U.S. market by 28% indicates potential challenges in maintaining revenue in international markets, particularly given the strategic decision to prioritize profitability over the top line, affecting overall revenue performance.
The competitive landscape involves challenges from new entrants and existing players who may offer lower prices or more attractive deals, potentially impacting ASOS's revenue and market share growth if ASOS is unable to competitively price their offerings or maintain consumer interest.
There are operational risks associated with supply chain transformations and reducing fulfillment center costs, which, if not effectively managed, could impact service levels and customer satisfaction, thereby affecting revenue and net margins.
The shift away from heavy discounting may not resonate with all consumer demographics, especially those seeking bargains, potentially impacting ASOS's revenue if they fail to engage adequately with budget-conscious segments.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of £3.952 for ASOS based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £7.9, and the most bearish reporting a price target of just £2.2.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £2.8 billion, earnings will come to £84.8 million, and it would be trading on a PE ratio of 8.0x, assuming you use a discount rate of 12.9%.
Given the current share price of £2.68, the analyst price target of £3.95 is 32.3% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Fashion Trends And Supply Chain Efficiency Will Define Success