Asos share price has plunged: is it a buy ahead of earnings?

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Asos (LON: ASC) share price plunged by more than 11% on Monday as worries about the company continued. The stock plunged to a low of 470p, which was the lowest level since February 2010. It has surged by about 80% this year. The shares have fallen by 95% from their all-time high, bringing its total market cap to about 470 million pounds.

Asos earnings ahead

Asos is a leading fashion retailer that sells over 850 brands to customers mostly in the United Kingdom. Some of the leading brands it sells are Adidas, TopShop, The North Face, and Collusion, among others.

Asos, like other British retailers has been under intense pressure in the past few months. For one, with inflation rising, consumer spending has been hurt as customers focus on staples. 

At the same time, the falling British pound has made it highly expensive for the company to import it clothes from countries like China and Germany.

Asos share price crashed on Monday after reports emerged that the company was looking forward to restructure its finances. The restructuring is about its 350 million pounds revolving credit facility. In a statement, the company said that these funds will give it flexibility against a tough challenging environment. The statement added:

“This action will give ASOS significantly increased financial flexibility, against the uncertain economic backdrop. ASOS retains a strong liquidity position and this is a prudent step in the current environment.”

The report came two days ahead of the company’s results for the full year to 31st August of this year. In August, the company said that it expects to make a loss as inflation rose. 

Asos revenue for the nine months to 2022 rose by 2% to 2.9 billion pounds while its gross margin dropped to 33%. 

Asos share price forecast

The daily chart shows that the ASC share price has been in a strong bearish trend in the past few months. This sell-off saw it crash below the important support level at 779p, which was the lowest level in January this year.

The stock has crashed below all moving averages while the Relative Strength Index (RSI) has moved below the oversold level. Meanwhile, the MACD moved below the neutral level. Therefore, the stock will likely continue falling as sellers target the next support at 400p. A move above the resistance at 550p will invalidate the bearish view.

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