Goldman Sachs helped ASOS PLC (LON:ASC) to rally on Tuesday after it upgraded its stance on the online fashion retailer to 'buy' from 'neutral' on the back of higher revenue forecasts following a recent trading update.
The US bank also raised its price target for AIM’s biggest stock to 7,900p from 7,100p, with the shares currently trading at 5,699p, up 3.2% on Monday’s close
READ: ASOS shares tank as third quarter sales miss market forecasts
In a note to clients, Goldman’s analysts said they expect ASOS’s sales to grow by around 24% in full-year 2019/20, which is the top end of the group's mid-term guidance, and see them reaching around £4.5bn/£7bn between full-year 2021 to 2024.
They said they expect the web retailer’s revenue growth to be supported by accelerating growth in the US and continued online penetration in Europe.
The analysts added: “We also view beauty as an incremental opportunity. Amid tough competition, we expect ASOS to continue to differentiate versus incumbent and newer players (e.g. SheIn/Zaful)."
However, they also noted that incremental pressure on gross margin owing to import tax and product mix could affect near-term profitability/operating cash generation, limiting ASOS's ability to further invest in growth projects.
Disappointing update
Last week, ASOS saw its shares drop 10% after it disappointed the market by leaving its full year estimates unchanged and saying it expects sales growth to be at the lower end of its guidance range.
ASOS’s group revenue rose to £823.9mln in the four months to June 30, up from £675.8mln the same period a year ago.
That was a 22% increase at actual exchange rates or 21% gain at constant currencies. However, analysts had expected group revenue to rise 25.3% at constant currencies.