Recent ASOS weakness is buying opportunity, says RBC Capital

RBC Capital Markets reiterated its ‘outperform’ stance and 4,500p price target on online fashion retailer ASOS, saying the recent share price weakness was a buying opportunity.

RBC noted the shares have dropped more than 10% over the last month, most likely on concerns over Amazon's push into fashion and uncertainty ahead of the EU referendum.

“We think the Amazon threat is overstated and believe that ASOS's trading remains strong, particularly in the UK where we expect further market share gains,” RBC said.

In addition, it said the market underestimates the growth opportunity in the US where proposition enhancements are already visible. It expects underlying US revenue growth to accelerate next year as recent improvements made to the US customer proposition begin to yield top-line upside.

RBC sees upside to ASOS's 20% revenue growth guidance for this year given recent investments in US delivery and prices as well as other improvements to the overall customer proposition.

It forecasts a 20% five-year revenue compound annual growth rate versus consensus at 18% and said its addressable market analysis suggests ASOS is still under-penetrated both in terms of market share and active customers.

The Canadian bank reckons the company’s Capital Markets Day on 29 June will focus on future revenue growth opportunities and the potential benefits from new technology, warehousing and content initiatives.

At 1000 BST, ASOS shares were up 4.3% to 3,608p.