It’s been a crazy week on global stock markets. The FTSE 250 Index fell 9% in recent days to sit as low as 17,890 points but recovered strongly after US President Donald Trump’s tariff pause to sit at 18,570 as I write on April 11.
The market moves caused by the ‘Liberation Day’ tariff announcements mean many companies making up the UK mid-cap index have suffered sharp share price falls — and one online retailer in particular has caught my eye.
Beaten down FTSE 250 retailer
ASOS (LSE: ASC) is the company in question. The online retailer has seen its share price plummet 37% since the start of the year to 274p per share as I write.
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The company’s market cap is sitting around £327m — a far cry from the £530m valuation held as recently as December. So, what’s put the company’s share price under so much pressure?
Fierce competition
Online fast-fashion is a tough business. The FTSE 250 company built its success on rapidly producing fashion garments for consumers but the nature of the game can quickly change.
One big factor weighing on the company’s share price of late is the explosion in popularity of other, lower-cost fast-fashion e-tailers such as Shein. Higher cost-of-living pressures are also a factor as consumers watch their purses a little more closely.
This has hurt sales and profitability, with the company’s revenue falling 18.1% in 2024 to £2.9bn as sales declined across all geographies.
Operating losses also widened by 33% during the year from £248.5m in 2023 to £331.9m last year. I wouldn’t expect to see any dividends from the online retailer any time soon.
The share price has been under pressure in recent days as investors weigh the impact of proposed tariffs on China — a key part of ASOS’s supply chain.
To buy or not to buy?
You may have heard the phrase: “Don’t try to catch a falling knife”. This is when investors try to buy the dip in a falling share price, only for it to fall further and cause more losses.
The company’s share price was already under significant pressure before the tariff announcements. Fierce competition in a consumer-facing industry makes ASOS a tricky stock to value at present.
However, if the company can implement cost-cutting measures and boost profitability, I think it could turn things around. Online retailing is a fast-moving game, and the ability to spot trends and maintain a low-cost and agile operating model is key.
There’s also the chance that the company could be a beneficiary if it can navigate the impact of the tariffs by shifting production and focusing on key growth markets.
One other potential carrot dangling in front of investors is the company’s rumoured status as a takeover target which could attract a premium bid from potential suitors.
My verdict
I personally think the challenges facing the company outweigh the potential opportunities. While the recent share price declines has pushed ASOS’s valuation lower, opportunities in non-cyclical industries like pharmaceuticals are of higher priority for me at present.
It could be one to keep on the watchlist and revisit once the valuation has stabilised and there are signs of a clear pathway to recover sales and profitability in the future.
