Goldman Sachs upgrades Asos to 'buy'

22nd May 2014 14:47

Despite the slowdown seen in Asos's sales during the second quarter, analysts at Goldman Sachs upgraded the shares to 'buy' despite cutting its earnings forecasts. Now the broker calculates that the digital fashion retailer's three-year forward compound annual growth rate of sales will be at 31%, instead of 38%.That means that Goldman´s earnings per share estimates up until 2016 have been reduced by 18% on average, resulting in a large drop in its 24-month price target on the stock. The latter is now estimated at 6,250p versus 7,300p beforehand. That target implies a price-to-earnings ratio of 66 and an enterprise value/earnings before interest taxes and depreciation (EV/EBITDAR) multiple of 47 on the basis of their estimates for fiscal year 2015. However, Goldman continues to believe that the retailer is "well-positioned" to take advantage of the current shift in global apparel towards online. Under the assumption that 20% of sales migrate to the digital space then that market may be worth €425bn by 2030.Hence, analysts continue to forecast medium-term growth of between 30% and 40%. Even so, the firm is in an investment phase. As a result sales growth may moderate relative to their previous expectations, the broker admitted. AB