ASOS delivers in-line Q1, but analysts recommend investors 'hold'

9th Dec 2014 11:39

An in-line trading statement from online fashion retailer ASOS wasn't enough to change analysts' opinions on Tuesday as a number of brokerages remained on the fence about the stock.Peel Hunt, The Share Centre and Cantor Fitzgerald all retained their 'hold' recommendations, citing valuation concerns despite the recent sell-off.ASOS's shares were down 6.2% at 2,231p by 11:28 despite a seemingly as-expected update with group retail sales increasing by 8% in the first quarter ended 30 November as strength in the UK was offset by weakness overseas. The gross retail margin was down 170 basis points over last year.Some £6.3m of insurance proceeds relating to a warehouse fire will be deployed to accelerate investment in international pricing. After taking this into account, full-year profits should be "in line with expectations".Peel Hunt said that there is "no reason to chase" the stock as the shares look "overvalued", especially considering the downside risk to long-term margin targets."We believe investors looking for growth opportunities and value from ecommerce are better placed looking at the newer businesses on the market such as Boohoo, particularly as the risk to forecasts remains on the downside," said Peel Hunt analyst John Stevenson.Similarly, Graham Spooner from The Share Centre pointed out that even after a 60% fall in the share price this year, the stock is still expensive compared to its peers. He said: "We continue to recommend ASOS as a 'hold' for investors while it works through short-term headwinds."Meanwhile, Freddie George from Cantor Fitzgerald agreed, saying that "the stock remains highly rated at 54.7 times our [current-year] earnings forecasts".He said: "We are concerned that after the business has been put on even keel, longer-term earnings are likely to resort back to a more pedestrian +10% to 15% per annum, similar to a fast growing 'bricks and mortar' retailer such as Ted Baker."