ASOS PLC (LON:ASC) is expected to “go hard” into Black Friday but has “a lot to prove” this Christmas following last year’s mishaps, City broker Peel Hunt said in a note on Friday upping its recommendation to 'add' from ‘hold’.
The AIM-listed company has issued two profit warnings over the year, the most recent in July due to teething problems at its new US and European warehouses, pushing the number crunchers to wonder whether its overseas operations were fully functioning and what was happening with its profit margins.
Last week ASOS shares rose more than 20% in the online fashion retailer although it reported a 68% plunge in full-year profit before tax, barely providing any comment on current trading.
UBS rode the optimistic wave earlier this week, upgrading its price target and profit guidance for ASOS on the back of a recovery in operational issues and customer traction.
Peel Hunt followed suit today, increasing the target price to 4,000p from 3,000p, nearly double the pre-results share price of 2,560p but still far away from the stock's all-time high of 7,630p reached in March 2018.
The broker said the market opportunity “remains vast” and, having brought the European warehouse back to full operations, ASOS is ready for the upcoming peak trading season, when it “needs” to deliver a successful performance.
“We expect to see a big Black Friday campaign designed to drive customer recruitment, reactivate lapsed customers and deliver an accelerating sales performance,” Peel Hunt's analysts said in the note.
“Short term, this will drive the share price in our view, but the medium-term opportunity for sales, margins and sustainable free cash flow remains the primary attraction,” they added.
ASOS shares were down 2% to 3,607p on Friday morning.