Liberum ups ASOS to 'buy' following recent share price fall

LONDON (ShareCast) - (ShareCast News) - Liberum upgraded ASOS (LSE: ASC.L - news) to 'buy' from 'hold', saying three things have changed its view of the stock. Firstly, it believes that the investment in infrastructure coming on stream should drive operating leverage over the next few years.

Secondly, it pointed to the recent sharp fall in the shares and said this tilts the risk/reward balance back towards reward. It (Other OTC: ITGL - news) noted the shares have dropped 39% since their April 2015 highs, meaning they now trade at a 16% discount to the long-term price-to-earnings average.

"We have long struggled with the ultra-high valuation that the market ascribed to ASOS but believe that the recent fall in the shares presents a buying opportunity supported by upside risk in our forecasts," it said.

Finally, Liberum said that with easing comps over the next few reporting periods, it expects the company to report strong sales growth, which has historically been the main driver of the share price.

Liberum said wider market malaise and the chief executive officer's resignation have knocked the price but it believes the fundamentals are stronger. It forecasts a 20% sales compound annual growth rate to 2018.

Liberum has a 3,300p price target on the stock.

At 1330 BST, ASOS shares were up 5.5% at 2,663p.