The tragic collapse of the Asos share price: survival is at risk

Asos (LON: ASC) share price has plunged to the lowest level on record as concerns about the company jump. The stock was trading at 350p, ~95% below its all-time high. As a result, the company has a market cap of over £435 million.

Asos buyout is the only hope

Asos and Boohoo have come under intense pressure as demand wanes and the cost of living bites. Interim results published in May revealed that its revenue dropped by 8% to £1.8 billion in the six months to February this year. Its adjusted gross margin dropped to 42.9% while the cash outflow soared to over £262 million. Its loss before tax soared to more than £290 million, as I wrote here.

Therefore, these results show that the company could be on the verge of collapse considering that its net debt jumped to £431 million during this period. This explains why the Asos share price has tumbled by over 33% this year while the FTSE 100 has risen by less than 1% this year. 

The most recent news show that the company is having more issues. For one, according to The Times, some of the company’s suppliers have started cutting ties over insurance and profit fears. For a retailer, this is usually a sign that things are not doing well. Most recently, we saw Bed Bath & Beyond collapse after suppliers paused deliveries. 

The only light at the end of the tunnel is Mike Ashley, the founder of Frasers Group. He has bought stock in the company, giving him a 9% ownership. Therefore, there is a likelihood that Mike will reach an agreement to snap Asos. 

Mike Ashley is not alone considering that the owner of Zalando may be interested in the company. The other person who could acquire the company is William Barker, the second biggest shareholder in the company. He also has a stake in Boohoo, another struggling British online retailer.

Asos share price forecast

Asos chart by TradingView

The daily chart shows that the Asos stock price has been in a strong bearish trend in the past few months. It has crashed below the key support level at 464p, the lowest level on October 17th last year. The shares have dropped below all moving averages (MA). It has also dropped below the key support at 491.7p, the lowest point in December last year.

Therefore, from a technical standpoint, the outlook of the stock is bearish, with the next level to watch being at 300p. However, short-sellers should be cautious because of any takeover bids, which could push it sharply higher. If this happens, the stock will likely rise to the key resistance point at 464p.