Broker snap: ASOS's rating becoming stretched

23rd Apr 2010 13:06

FinnCap has initiated coverage of stock market darling ASOS with a 'sell' recommendation, setting it apart from all but one of 15 other brokers that cover the stock and which either rate it as a 'hold' (five brokers) or a 'buy' (nine brokers).Finncap attributes the enthusiasm for ASOS to the fact that it is "one of the relatively few pure-play online retail investments." Online is where the fast growth opportunities are for most retail businesses now, Finncap acknowledges, and that will continue to underpin the premium rating of an online specialist such as ASOS.However, after the recent upsurge in the share price FinnCap thinks the share price is looking frothy as "the upgrades that used to regularly accompany updates have become less frequent.""Unless earnings growth accelerates, it is hard to argue for a further re-rating. Indeed, one could argue that the current rating does not allow for execution risk or increasing competition," analyst David Stoddart suggests.The broker has a 550p price target for ASOS.