Financial Trading Blog

Has ASOS already bottomed?



After shares plunged over 70% this year, the company is changing management. But is it enough to reverse sentiment?
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Creditors wonder where the money is

In its latest trading update, Asos said it had substantial funds available. But also, quite recently, it disclosed that it was Debt has been higher than expected, one of the reasons creditors are looking to get a more in-depth look at the online retailer's finances.

Of course, fashion retailers are expected to face a challenging environment as inflation makes shoppers prefer groceries over clothes. The company itself echoed that sentiment. Asos cut its earnings guidance to the bottom end of its profit expectations of between £20-60M range.

 

New CEO gets chance to ease concerns

There are many expectations for tomorrow's earnings release since it's the first time the new CEO will give his vision of the future. That means there could be announcements of significant changes to the company's right side. With creditors starting to worry, the EBITDA-to-debt ratio will likely get extra focus.

Sales in the company have consistently risen for decades now, and the expectation from the company is that the current fiscal year won't be any different. So, the focus is also on efficiency objectives and translating increased revenue into profit. With the expected looming recession in the UK and the US at the start of next year, profitability guidance for the next period is likely to be pivotal.

 

Falling wedge signals reversal; for now

Asos' share price appears to be spiralling upwards in the short-term, breaking out from the falling wedge pattern in the depiction. Confirmation of the reversal would be provided following a breakout past 740, the origin of the upper wedge trendline. Shorter-term, the price of Asos is leading a breakout of the descending trendline, with 620 (R1) interim resistance above the swing high of 560.
If MACD momentum rises above the zero line, there would be a distinct possibility of a rally to the 740-755 (R2) zone, with 1180-1250 (R3) as a longer-term ceiling. The MACD histogram should see an acceleration to support the bullish thesis. However, if the double divergence fails to manifest into a price reversal, the record low of 455 (S1) will likely pave the way to -initially-
400, then lower to round levels. Depending on the downside momentum, the falling wedge will either get invalidated or last longer if the lower trendline holds firm.
has-asos-already-bottomed-191022

 

Key takeaways

Asos is looking to refinance its outstanding loans due to higher-than-expected debt. This is likely due to the challenging environment for fashion retailers, which is expected to continue. As a result, the company has cut its earnings guidance. The new CEO might announce changes to the company tomorrow, which is particularly interesting to creditors. Investors will likely focus on efficiency objectives and profitability guidance for the next period.

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