H&M’s share price slide and the negative sentiment surrounding the stock are justified, with wider industry headwinds adding to its woes, according to analysts at JP Morgan.
Analysts argued investors are now less confident in management achieving its EBITDA margin target of more than 10%, which was initially a positive catalyst when revealed last year.
In the fourth quarter, EBITDA margins were at 7% and, although the group reiterated the guidance on Wednesday, tailwinds are predicted to be weighted to the first half.
Following the “disappointing” results and the surprise exit of CEO Helena Helmersson, shares in the Swedish retailer dropped around 12% on Wednesday.
JP Morgan says the “lacklustre sales performance”, lack of customer re-engagement and elevated levels of markdowns will only add to the fashion giant’s woes.
“Comments on potential selling price deflation is also unhelpful, and re-ignite our concerns flagged last year regarding this risk for the broader sector,” the US bank added.
Therefore, it rates the stock ‘underweight’, instead preferring Zara-owner Inditex.
Shares are targeted to reach SEK130 by JP Morgan, lower than Thursday’s price of SEK145.