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ASOS’ Christmas sell-off was overdone, says RBC, as it lifts fashion retailer's price target

More than £1bn was wiped from ASOS’ value in December on the back of a shock profit warning, but RBC thinks the sell-off was overdone, although it has created an “opportunity” to buy the stock
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ASOS has slipped to third in the list of largest AIM companies

Online clothes seller ASOS PLC (LON:ASC) looks cheap, according to the retail buffs at RBC Capital.

ASOS shares tanked at the end of 2018 as its seeming immunity to the waning confidence of UK shoppers amid an uncertain economic backdrop expired.

READ: ASOS slumps on profit warning

The fashion retailer slashed its full-year forecasts after warning that it had seen an “indicant deterioration” in sales in November, while unseasonably warm weather had knocked demand for its winter ranges.

Within a matter of days, the share price had halved from around 4,200p to just above 2,100p, wiping more than £1bn from its market capitalisation.

RBC cut its price target and removed ASOS from its ‘Top Pick’ list in the wake of that profit warning.

“[The downgrade was] mainly because of the macro uncertainty that has increased rather than a change in our view on the company’s relative positioning and ability to take market share,” read a brief research note on Friday.

“The industry backdrop significantly deteriorated in 2018, and despite its structural tailwinds, ASOS is evidently not immune.”

Target priced hiked to £36

But analysts reckon the sell-off has been too harsh which provides investors with an “opportunity” to get in on the cheap, even with the stock recovering over the past few weeks.

“We continue to believe that its industry-leading proposition and pace of innovation will enable ASOS to continue taking share in its large addressable market,” they added.

“Having assessed the risk/reward, we are still compelled by the opportunity the current share price creates.”

RBC repeated its ‘outperform’ rating for ASOS as it hiked its price target up to 3,600 from 3,200p previously.

ASOS shares were unmoved by the price target increase, with shares broadly flat at 3,290p.

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