Here’s why the Asos share price just tumbled to a 13-year low

Asos (LON: ASC) share price tumbled to the lowest level since 2010 as concerns about the company’s future remained. The shares plunged to a low of 430p, which was about 90% below its all-time high. Other fast-fashion companies like Boohoo also crashed hard on Monday.

Asos financial results

Asos, the fast-fashion retail company, has come out of fashion at a fast pace. The company’s demand has crashed as the cost of living crisis in the country has escalated. Results published last week showed that the company’s revenue dropped in the last six months.

The company’s revenue by 8% to £1.84 billion while its adjusted earnings before interest and tax dropped by 20 basis points from 43.1% to 42.9%. Most importantly, the company’s free cash flow dropped from £256.5 million to £262.7 million in the same period. 

The company announced that the operating loss before tax dropped from £15.6 million to £290 million. UK sales have dropped by 10% while those in the US dropped by 7%. Asos expects that its sales momentum will drop by 15% while adjusted EBIT will be between £40 million and £60 million. The CEO said:

“Our focus is on improving our core profitability, prioritizing order economics over top-line growth and I am pleased with the strategic and rapid operational progress the business has made in the first half of the financial year, against some very challenging trading conditions.”

As a result, Asos share price plunged after analyts downgraded their outlook for the stock. Barclays downgraded the shares target from 625p to 500p as it warned that the company will need to raise cash. It has a £500 million convertible loan due in 2016 and outflows of £100 million.

Asos share price forecast

ASC chart by TradingView

Asos stock price has made a bearish breakout, as I warned here. The stock managed to move below the key support at 467.3p, the lowest level on October 7 last year. It has plunged below the 50-day moving average while the Relative Strength Index (RSI) has moved below the oversold level. It has been dropping after hitting the overbought level on 78.30 on February 2.

Therefore, the shares will likely continue falling as sellers target the next key support level to watch will be at 400p. A move below this support will see it drop to the key support at 350p.