Investing 25-11-2022 13:28 18 Views

Asos share price is down by 90% from ATH: Is it safe to buy?

The Asos (LON: ASC) share price has had a remarkable fall from grace as short interest has jumped and growth has slowed. The stock was trading at 624p on Friday, which was slightly below this month’s high of 805p. It has dropped by more than 73% this year, giving it a market cap of more than £638 million.

Slowing growth, high short interest

Asos is a leading British fashion company that focuses on young adults. It sells its products mostly online and through its eponymous brand and others like Topshop, Topman, and Miss Selfridge. 

Asos was one of the best winners of the Covid-19 pandemic as demand for online shopping rose. In 2020, its total revenue jumped to over £3.26 billion from just £2.7 billion a year earlier. This stellar performance was followed by an increase to £3.9 billion in 2021. 

This year, however, Asos business has struggled as the UK reopened and inflation jumped. The company’s cost of doing business also rose, hitting its operating and net profitability. Like Boohoo, the company is dealing with elevated customer returns.

Asos has continued to warn about its business and profitability. The most recent results showed that Asos number of visitors to its flagship website dropped by 2% while total orders rose by about 5%. Further, as costs rose, the company’s reported loss after tax widened to £31.9 million. Asos is also facing other challenges like rising competition from companies like Shein. 

Still, there are some potential catalysts that could push the Asos share price higher in 2022. First, as the US has shown, there is a likelihood that inflation has peaked. While energy prices are expected to remain high, the supply chain issues could lead to more improvements. 

Second, unlike, Asos is not at risk of going bankrupt. It has a net debt of £152.9 million, which is reasonable. Third, the ongoing fear about the company has left a firm that is significantly undervalued. Finally, the company will likely return to growth in the coming year.

 In the short term, the stock will likely continue falling as sentiment remains weak. As I wrote in this article, Asos is one of the most shorted companies in the UK.

Asos share price forecast

Asos shares chart by TradingView

The daily chart shows that the Asos stock price has been in a strong bearish trend in the past few days. It has dropped in the past eight straight days. Along the way, it has dropped below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) has moved below 50.

Therefore, from a technical standpoint, I suspect that the shares will continue falling as sellers target the key year-to-date low of 462p.

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